Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31,
2016

¨

Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from
to

Commission File Number 000-22920

NUMEREX
CORP.

(Name of Registrant
as Specified in Its Charter)

Pennsylvania

11-2948749

(State or Other Jurisdiction

of Incorporation or Organization)

(I.R.S. Employer

Identification Number)

400 Interstate North
Parkway, Suite 1350 Atlanta, GA

30339-2119

(Address of Principal
Executive Offices)

(Zip Code)

(770) 693-5950

(Registrant’s Telephone Number,
Including Area Code)

Securities Registered Pursuant to Section 12(b)
of the Act:

Class A Common Stock, no par
value

(Title of each class)

The NASDAQ Stock Market LLC

(Name of each exchange on which
registered)

Securities Registered Pursuant to Section 12(g)
of the Act: None

Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15 (d) of the Act. Yes o No þ

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of the
registrant’s outstanding common stock held by non-affiliates of the registrant was $146.1 million based on a closing
price of $7.49 on June 30, 2016, as quoted on the NASDAQ Global market.

The number of shares outstanding of
the registrant’s Class A Common Stock as of March 30, 2017, was 19.6 million shares.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a definitive
proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2016.
The proxy statement is incorporated herein by reference into the following parts of the Form 10-K:

This document contains, and other statements may contain,
forward-looking statements with respect to Numerex future financial or business performance, conditions or strategies and other
financial and business matters, including expectations regarding growth trends and activities. Forward-looking statements are
typically identified by words or phrases such as "believe," "expect," "anticipate," "intend,"
"estimate," "assume," "strategy," "plan," "outlook," "outcome," "continue,"
"remain," "trend," and variations of such words and similar expressions, or future or conditional verbs such
as "will," "would," "should," "could," "may," or similar expressions. Numerex
cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over
time. These forward-looking statements speak only as of the date of this filing, and Numerex assumes no duty to update forward-looking
statements. Actual results could differ materially from those anticipated in these forward-looking statements and future results
could differ materially from historical performance.

The following factors, among others, could cause actual
results to differ materially from forward-looking statements or historical performance: our inability to reposition our platform
to capture greater recurring subscription revenues; that a substantial portion of revenues derived from contracts may be terminated
at any time; the risks that our strategic suppliers materially change or disrupt the flow of products or services; variations
in quarterly operating results; delays in the development, introduction, integration and marketing of new products and services;
customer acceptance of services; economic conditions resulting in decreased demand for our products and services; the risk that
our strategic alliances, partnerships and/or wireless network operators will not yield substantial revenues; changes in financial
and capital markets, and the inability to raise growth capital; the inability to attain revenue and earnings growth; changes in
interest rates; inability to repay our indebtedness; inflation; the introduction, withdrawal, success and timing of business initiatives
and strategies; competitive conditions; the inability to realize revenue enhancements; disruption in key supplier relationships
and/or related services; and extent and timing of technological changes.

PART I.

Item 1. BUSINESS

Overview

Numerex Corp. (“Numerex,” the “Company”
or “we”) is headquartered in Atlanta, Georgia, and is a corporation organized under the laws of the Commonwealth of
Pennsylvania. We are a single source, leading provider of managed enterprise solutions enabling the Internet of Things (IoT). We
empower enterprise operations with world-class, managed IoT solutions that are simple, innovative, scalable and secure.

Our core strategy is to generate long term and sustainable
recurring revenue through a portfolio of managed, end-to-end IoT solutions which are generally sold on a subscription basis and
built on our horizontal, integrated platform. Our solutions incorporate the key IoT building blocks – Device, Network, Application
and Platform. Our solutions also simplify the implementation and improve the speed to market for enterprise users in select, targeted
verticals in the asset monitoring and optimization, asset tracking, and safety and security markets.

Our technology encompasses a broad spectrum of the IoT ecosystem
and delivers managed solutions for enterprise users which derive added value through device, network, application and platform
enablement. Our industry leading solutions combine over 20 years of expertise and experience through a modular, end-to-end platform
infrastructure, and are already market proven with pre-packaged, hosted IoT vertical solutions that are being rapidly deployed
by thousands of enterprises. At the end of 2016, we supported more than 1.7 million IoT subscriptions.

An IoT solution is generally viewed as a combination of devices,
software and services that operate with little or no human interaction. More specifically, it consists of using a device or sensor
(e.g., tracker or communicator, etc.) to capture “event” data (e.g., fill level, inventory status, location, temperature,
etc.) relaying the data through a network (e.g., cellular or satellite) to an application (often with cloud or Internet based
software), by way of a horizontal platform, which then translates the captured data into actionable information (e.g. alarm notification
send help, the whereabouts of a person of interest, the location of an asset being tracked, the fill level in a tank is too low,
etc.).

Our subscription-based vertical solutions and platform services,
which are intended to generate streams of long-term, high-margin recurring revenues, are the cornerstone of our business model.
We create value by helping our customers implement IoT solutions through a single source – rapidly, efficiently, reliably
and securely. We put a strong emphasis on data security, including the use of authentication, encryption and virtual private network
technologies referred to as “VPN” to protect customer data.

3

We operate in the Business-to-Business market, and our customers,
in general, serve the final end users. Our products and services are primarily sold to enterprise and government organizations,
some with global deployments. We have decided to concentrate our resources to focus on a number of vertical markets that we believe
we can grow profitably, compete well, and command market leadership. Our targeted vertical markets include home security, public
safety, oil and gas, manufacturing and supply chain management. We offer a complete solution
through a single source, rather than requiring customers to utilize multiple vendors. We also provide several enabling value-added
services and accelerate the go-to-market process for our customers by simplifying the complexity of a successful IoT implementation
through our cloud-based, horizontal IoT platform.

In addition to selling pre-configured, off-the-shelf managed
solutions to targeted vertical markets, we also sell our solutions as white labeled IoT solutions to our channel partners who
have well-defined markets and a sales organization that can ramp up quickly with scale to deploy these solutions to their customers.
Examples of such white labeled solutions include asset tracking, tank monitoring, mPERS (mobile personal emergency response systems),
and fleet tracking.

Our offerings use cellular, satellite, broadband and wireline
networks worldwide to transmit data. We understand and manage all the requirements associated with international connectivity
including regulations, processes and data requirements.

We utilize a diverse range of third party manufacturing sources
and telecommunications standards. Our ability to use a scalable, horizontal platform as a service to enable a robust management
portal that can manage carrier relationships, consolidate disparate networks, and keep track of thousands, if not millions of
devices – all while providing customers with a complete view of their activity – is a unique strength of Numerex and
a clear differentiator from our competitors.

SERVICE DELIVERY PLATFORM AND ENABLING SERVICES

v

The Numerex IoT Platform

In a rapidly changing business environment requiring visibility
and real-time access to information, rapid solutions deployment with the ability to manage networks, devices and applications
from a single source platform can have a significant impact on business processes and contribute to improved operational efficiencies.
Our broad IoT horizontal service delivery platform was designed with that goal in mind.

The Numerex platform combines IoT service enablement features
with configurable application frameworks to deploy solutions quickly and to reduce or eliminate development costs. Operating in
a cloud-based environment, the platform focuses on the core enablement of IoT solutions and provides the ability to deliver value-added
services with speed and ease. Our platform provides a wide range of capabilities such as application enablement frameworks; self-care
portal for device and subscriber; gateway as a service; data management and warehousing; billing service; policy and performance
management; connectivity management; and network management.

Our platform provides scalability and flexibility with service
delivery options that can be accessed independently or as a fully integrated solution without costly development and coding. Whether
customers desire to exploit a new revenue opportunity or to gain visibility into existing operations to reduce costs, our platform
can be utilized in many ways. Typical offerings include white labeled applications; application extension to a mobile IoT environment;
sensor and tracking data management from wireless devices into the customer’s back office enterprise applications; and distributed
service offerings to dealers and representatives.

4

v

Enabling Services

We offer an extensive range of products and services that work
with our hosted platform and that make integration between smart device, network, application, and customer systems a seamless
process. From asset tracking on a global scale to stationary or “static” solutions that involve monitoring, measuring,
and metering applications, our team of IoT on-boarding specialists and engineers work together to optimize commercialization of
a solution. Examples of enabling services include: network connection setup, device installation support and services, 24x7x365
customer support; flexible billing; integration services; automated provisioning; a device management portal; a monitoring and
network operations center; network redundancy; product certification; and ancillary services such as, but not limited to, warehousing
and fulfillment.

SALES, MARKETING AND DISTRIBUTION

We sell our solutions and related services to, with, and through
our strategic partner channels including integrators, consultative groups, wireless network operators, key supply chain partners
and large end-user enterprises. We also sell direct to enterprise users in most of the markets we operate in.

We primarily employ an indirect sales model for our unbranded
(white label) products through Value Added Resellers (VARs), vertically focused System Integrators (SIs) and Original Equipment
Manufacturers (OEMs) who integrate our products and services into their own solutions. We also indirectly market and sell certain
Numerex branded products and services through distribution and dealer channels, specifically the Uplink Security Solutions. Uplink
alarm security products are sold “off the shelf” into distribution channels and to dealers throughout North America.

SUPPLIERS

We rely on third-party contract manufacturers, component suppliers,
and wireless network operators and carriers to manufacture and supply most of the equipment used to provide our wireless IoT solutions,
networking equipment and products. We also rely on multiple third-party wireless network operators to provide the underlying network
service infrastructure that we use to support our IoT data network. These third party suppliers and wireless network operators
are located primarily in the United States but also include other North American and international vendors.

Several GSM-based wireless carriers have announced their intention
to discontinue their second generation (2G) networks between 2016 and 2020. CDMA-based carriers have announced their intention
to discontinue 2G networks as early as 2018. We have entered into a reseller agreement with one of our network service providers
that will allow us to continue supporting 2G devices to the end of this decade while at the same time, introducing LTE (Long-Term
Evolution) products for more advanced services. During 2016, we converted 93% of our 2G subscribers from AT&T to T-Mobile.

COMPETITION

The market for our technology and platforms remains characterized
by rapid technological change. The principal competitive factors in this market continue to be product performance, ease of use,
reliability, price, breadth of product lines, sales and distribution capability, technical support and service, customer relations,
and general industry and economic conditions.

Several businesses that share our IoT space can be viewed to
some extent as competitors, including IoT focused Original Equipment Manufacturers (OEMs), vertically focused IoT Application
Service Providers (ASP), Mobile Virtual Network Operators (MVNOs) and resellers, certain type of IoT Platform providers, system
integrators, and wireless operators and carriers that offer a variety of the components and services required for the delivery
of complete IoT solutions. Some module manufacturers have also started to market application development platforms while other
IoT players offer airtime services, making integration capabilities available to their customers. However, we believe that we
have a competitive advantage and are uniquely positioned since contrary to most of these business entities, we provide all of
the key components of the IoT value chain, including Device, Network, Application (under the trademark of “Numerex DNA”),
cloud-based enabling platforms, multiple wireless technologies, custom applications, and wireless network services through one
single source. We believe that our current IoT services, combined with the continuing development of our network offerings, infrastructure
and technology, positions us to compete effectively with emerging providers of IoT and IoT solutions using GSM, CDMA, LTE, and
satellite technologies. Other potentially competitive offerings may include Wi-Fi, Low Power Wide Area Network (LPWAN), and other
technologies and networks. We continue to closely monitor the industry trend and evaluate our network options.

Our Uplink security products and services have five primary
competitors in the existing channels of distribution — Alarm.com; Honeywell’s AlarmNet; NAPCO Security Technologies;
Telular’s Teleguard and DSC, the security division of Tyco. We believe that the principal competitive factors when making
a product selection in the business and consumer security industry are hardware price, service price, reliability, industry certification
status and feature requirements for specific security applications, for example fire, burglary, bank vault, etc.

ENGINEERING AND DEVELOPMENT

Our success depends, in part, on our ability to enhance our
existing products and introduce new products and applications on a timely basis. We plan to continue to devote a meaningful portion
of our resources to engineering and development. We incurred $9.2 million of engineering and development costs during the year
ended December 31, 2016, and capitalized $2.4 million of engineering and development costs as internally developed software.

We continue to invest in new services and improvements to our
various technologies, especially networks and digital fixed and mobile solutions. We primarily focus on the development of IoT
solutions and enabling platforms, enhancement of our gateway and network services, reductions in the cost of delivery of our solutions,
and enhancements and expansion of our application capabilities including application frameworks.

PRODUCT WARRANTY AND SERVICES

Our IoT business typically provides a limited, one-year
repair or replacement warranty on purchased hardware-based products. We provide limited no cost repair or replacement services on managed service hardware-based products over the term of the managed service agreement ranging from three to five years.
To date, warranty costs and the cost of maintaining our warranty programs have not been material to our business.

INTELLECTUAL PROPERTY

We
and our subsidiaries hold rights to patents to certain aspects of our hardware devices, software, and network and platform services.
We have also registered or applied for trademarks in the United States, Europe, Canada, Mexico and a number of other foreign countries.
Our portfolio of registered United States, European, Canadian, and Mexican trademarks includes such “core” marks as
NUMEREX®, UPLINK®, FOCALPOINT® OMNILINK®, IMANAGE ™,
ITANK ™ AND MYSHIELD. Although we believe the ownership
of patents and trademarks is an important factor in our business and that our success depends in part on such ownership, we rely
more on the talent, competence, and professional abilities of our personnel than on the accumulation of intellectual property
rights.

We regularly file patent applications to protect innovations
arising from our internal engineering and development activities. In recent years, our patent filings have increased reflecting
our increased investment in new product development. In deciding whether to file a patent application, we consider the commercial
benefit patent protection will provide over our obligation to disclose our innovation to the public and the cost of pursuing patent
protection. We make decisions concerning our pursuit of patent protection in foreign countries using the same philosophy.

Most of our patents, patent applications, and patents pending
fall into one or more of the following categories:

·

Wireless/cellular
signal transport

·

Alarm and security
system signaling

·

Location-based
signaling

·

Remote asset
and personal monitoring and tracking

·

Vending

·

Voice and video
signal transport

·

Offender tracking
and monitoring

6

·

Mobile personal
emergency response systems (mPERS)

No single patent is solely responsible for protecting our products.
United States patents have a limited legal lifespan, typically 20 years from the filing date for a utility patent filed on or
after June 8, 1995. We believe the duration of our patents is adequate relative to the expected lifespan of our products. No single
patent covers products or services that comprise a material portion of our 2016 revenues. No assurance can be given regarding
the scope of patent protection.

Many of our products utilize intellectual property rights of
third parties. It may be necessary in the future to seek or renew licenses relating to various aspects of our products and business
methods. While we have generally been able to obtain such licenses on commercially reasonable terms in the past, there is no guarantee
that such licenses could be obtained in the future on reasonable terms or at all. Because of technological changes in the industries
in which we compete, current extensive patent coverage, and the rapid rate of issuance of new patents, it is possible that certain
components of our products and business methods may unknowingly infringe upon existing patents or intellectual property rights
of others. We periodically receive offers from third parties to obtain licenses for patents and other intellectual rights in exchange
for royalties or other payments. From time to time, we have been notified that we may be infringing certain patents or other intellectual
property rights of third parties.

We also hold other intellectual property rights including,
without limitation, copyrights, trademarks, and trade secret protections relating to our technology, products, and processes.
We believe that rapid technological developments in the telecommunications and location based services industries may limit the
protection afforded by patents.

In an effort to maintain the confidentiality and ownership
of our trade secrets and proprietary information, we require all of our employees and consultants to sign confidentiality, non-compete,
and non-solicit agreements. Employees and consultants involved in technical endeavors also sign invention assignment agreements.

REGULATION

Federal, state, and local telecommunications laws and regulations
have not posed any significant impediments to either the delivery of wireless data signals/messaging or services using our various
platforms. However, we may be subject to certain governmentally imposed taxes, surcharges, fees, and other regulatory charges,
as well as new laws and regulations governing fixed and mobile communications devices, associated services, our business and markets.
As we expand our international sales, we may be subject to telecommunications regulations in those foreign jurisdictions.

EMPLOYEES

As of March 31, 2017, we had 157 employees in
the U.S., consisting of 79 in sales, marketing and customer service,73 in engineering and operations and
5 in management and administration. We have experienced no work stoppages and none of our employees are represented by
collective bargaining arrangements. We believe our relationship with our employees is good.

AVAILABLE INFORMATION

Our executive offices are located at 400 Interstate North Parkway,
Suite 1350, Atlanta, Georgia 30339. We make available free of charge through our website at www.numerex.com our annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and all amendments thereto filed or furnished
pursuant to 13(a) or 15(d) of the Securities and Exchange Act of 1934, as soon as reasonably practicable after such reports are
filed with or furnished to the Securities and Exchange Commission. Additionally, our board committee charters and code of ethics
are available on our website. We intend to post to this website all amendments to the charters and code of ethics. Our filings
are also available through the Securities and Exchange Commission via their website, http://www.sec.gov. You may also read
and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The information
contained on our website is not incorporated by reference in this annual report on form 10-K and should not be considered a part
of this report.

7

EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers, and all persons chosen to become executive
officers, and their ages and positions as of March 31, 2017, are as follows:

Name

Age

Position

Kenneth L. Gayron

47

Interim Chief Executive Officer and Chief Financial Officer

Kelly Gay

57

Chief Operating Officer

Shu Gan

55

Chief Marketing Officer

Mr. Gayron began serving as Chief Financial Officer
on March 7, 2016, and was appointed to the role of Interim Executive Officer, effective January 11, 2017. Prior to
joining Numerex, Mr. Gayron was Chief Financial Officer of Osmotica Pharmaceuticals, an international medical technology
company. At Osmotica, Mr. Gayron was instrumental in driving growth and improving profitability over 300%, resulting in a
successful exit to Vertical Pharmaceuticals, a portfolio company for Avista Capital. Mr. Gayron’s experience also
includes roles as VP Finance and Treasurer of Sensus, where he was a leader in building a scalable business platform for an
over $1 billion communications company, and Treasurer of Nuance Communications, a $2 billion technology company. Prior to his
corporate roles, Mr. Gayron was an investment banker for 10 years at UBS and CIBC World Markets. During his time on Wall
Street, Mr. Gayron completed over 60 transactions, in which he provided capital raising and advisory services to
technology and private equity clients.

Ms. Gay was appointed Chief Operating Officer in January of
2017. From May 2014 until May 2016, Ms. Gay served as the Company’s President, Network Solutions. Prior to that time, Ms.
Gay was Chief Executive Officer and President of Omnilink Systems Inc. (electronic tracking and monitoring devices) since April
2010. The Company acquired Omnilink in May 2014. Previously, Ms. Gay served as chairman, chief executive officer, and president
of KnowledgeStorm, a top-ranked online marketing services company providing search, lead generation, and branding to the technology
industry. Ms. Gay led KnowledgeStorm from start-up to acquisition by TechTarget (NASDAQ: TTGT) in 2007. Prior to joining KnowledgeStorm,
Ms. Gay led IBM in the media, entertainment, advertising, sports, music, publishing, broadcast, and cable markets as vice president
of IBM's North American Media and Entertainment division.

Mr. Gan began serving as Chief Marketing Officer on October
5, 2015. Mr. Gan most recently served as corporate VP and GM of Strategic Solutions at Syniverse. Prior to Syniverse, he served
as EVP at Aicent where he led multiple functions spanning product management, marketing, strategic business development, and global
sales as the company grew from startup stage to market leadership serving 200+ carriers worldwide, with most of its products and
services ranked among the top three in global market share. Mr. Gan has also held executive positions for Danghong Technologies
and FutureDial, both pioneering software-as-a-service providers.

8

Item 1A. Risk Factors

Investing in our common stock involves a high degree of
risk. You should carefully consider the following information about these risks before buying shares of our common stock. If any
of these risks occur, our business could be materially harmed, and our financial condition and results of operations could be
materially and adversely affected. As a result, the price of our common stock could decline, and you could lose all or part of
your investment. You should also refer to the other information contained in this Annual Report on Form 10-K for the year ended
December 31, 2016 (the Annual Report) or incorporated herein by reference, including our consolidated financial statements and
the notes to those statements. See also Forward-Looking Statements.

Risks Related to Our Business and Industry

We have a history of losses and are uncertain as to our
future profitability.

We have had mixed success with regard to generating net income.
After generating net income in each of the years 2011 to 2014, we have incurred net losses in 2015 and 2016. Beginning in the
third quarter of 2015, we began to concentrate on selling higher margin, integrated managed service subscriptions that include
the full suite of our devices, networks, applications and platform while moving away from the sale of individual components –
especially hardware only. Because of this strategic change, our hardware revenue declined significantly in 2016 and we expect
hardware revenue to remain relatively modest as compared to historical levels thereafter. Our new sales strategy may not be effective.

As a holding company, our primary material assets are our ownership
interests in our subsidiaries and in certain intellectual property rights. Consequently, our operating results derive from our
subsidiaries and we depend on accumulated cash flows, distributions, and other inter-affiliate transfers from our subsidiaries.
In view of our limited and inconsistent history of generating net income, unproven new sales strategy, level of operating costs,
and all other risk factors discussed in this annual report, we may not be profitable in the future.

The markets in which we operate are highly competitive and
we may not be able to compete effectively.

We sell our products in highly competitive markets. Some of
our competitors and potential competitors have significantly greater financial, technical, sales and marketing and other resources
than we do. Existing or new products and services that provide alternatives to our products and services could materially impact
our ability to compete in these markets. As the markets for our products and services continue to develop, additional companies,
including companies with significant market presence in the IoT industry, could enter the markets in which we compete and further
intensify competition. In addition, we believe price competition could become a more significant competitive factor in the future.
As a result, we may not be able to maintain our historic prices and margins, which could adversely affect our business, results
of operations and financial condition.

As a further result of such competition, our new solutions
and sales strategy could fail to gain market acceptance. We have recently introduced several managed services including but not
limited to: iManage, a supply chain and logistics optimization solution, iTank, a bulk tank liquid monitoring and distribution
optimization solution, and mySHIELD, a mobile personal emergency people tracking solution for lone workers. If these solutions
and services, or any of our other existing solutions and services, do not perform as expected, or if our sales fall short of expectations,
our business may be adversely affected.

We operate in new and rapidly evolving markets where rapid
technological change can quickly make hardware solutions and services, including those that we offer, obsolete.

The markets in which we operate are subject to rapid advances
in technology, continuously evolving industry standards and regulatory requirements, and ever-shifting customer requirements.
The IoT industry, in particular, is currently undergoing profound and rapid technological change. For example, many of the current
subscribers we host connect to cellular networks using 2G-based devices. Several GSM-based wireless carriers have announced their
intention to discontinue their 2G networks and fully deploy 3G/4G/LTE networks between 2016 and 2020. CDMA-based carriers have
announced their 2G sunset for as early as 2018. While we have begun to market, sell, and support 3G/4G/LTE-based devices and service,
we may not be successful in transitioning all of our 2G-based subscribers to 3G/4G/LTE and have lost, and may continue to lose
customers as a result. In addition to the carriers’ migrations away from 2G technology and our need to respond to that change,
the introduction of unanticipated new technologies by carriers, or the development of unanticipated new end applications by our
customers, could render our current solutions obsolete. In that regard, we must discern current trends and anticipate an uncertain
future. We must engage in product development efforts in advance of events that we cannot be sure will happen and time our production
cycles and marketing activities accordingly. If our projections are incorrect, or if our product development efforts are not properly
directed and timed, or if the demands of the marketplace shift in directions that we failed to anticipate, we may lose market
share and revenues as a result. To remain competitive, we continue to support engineering and development efforts intended to
bring new hardware solutions and services to the markets that we serve. However, those efforts are capital intensive. If we are
unable to adequately fund our engineering and development efforts, we may not be successful in keeping our product line current
and in sync with advances in technology and evolving customer requirements. Even with adequate funding, our development efforts
may not yield any appreciable short-term results and may never result in hardware solutions and services that produce revenues
over and above our cumulative development costs or that gain traction in the marketplace, causing us to either lose market share
or fail to increase and forego increased sales and revenues as a result.

9

If our goodwill or other intangible assets become impaired
we may be required to record a significant charge to earnings.

We have significant intangible assets, including goodwill and
intangible assets with indefinite lives, which are susceptible to valuation adjustments as a result of changes in various factors
or conditions. The most significant intangible assets, other than goodwill, are customer relationships, patents and core technology,
completed technology and trademarks. Customer relationships are amortized on a staight line basis, which approximates the pattern
over which the economic benefits are being utilized. Other identifiable intangible assets are amortized on a straight-line
basis over their estimated useful lives. We assess the potential impairment of intangible assets on an annual basis as well as
whenever events or changes in circumstances indicate that the carrying value may not be recoverable. During the years ended December
31, 2016 and 2015, we recorded charges of $12.0 million and $2.7 million, respectively, for the impairment of goodwill and other
intangible assets.

Factors that may be considered a change in circumstances, indicating
that the carrying value of our goodwill or long-lived assets may not be recoverable, include the following:

significant
changes in the manner of or use of the acquired assets or the strategy for our overall
business;

·

significant
negative industry or economic trends;

·

significant
decline in our stock price for a sustained period;

·

a
decline in our market capitalization below net book value; and

·

changes
in our organization or management reporting structure that could result in additional
reporting units, which may require alternative methods of estimating fair values or greater
disaggregation or aggregation in our analysis by reporting unit.

Future adverse changes in these or other unforeseeable factors
could result in additional material impairment charges that would negatively impact our results of operations and financial position
in the reporting period identified.

Our internal control over financial reporting may not be
effective.

During the process of completing the audit of our financial
statements for the period ended December 31, 2015, management became aware of the existence of material weaknesses in the design
and operation of the internal control over financial reporting related to the evaluation process for impairment of goodwill and
other intangible assets, and capitalization of internally developed software that could adversely affect our ability to record,
process, summarize and report financial data consistent with our assertions in the financial statements. These material weaknesses
were remediated as of December 31, 2016. We may also identify additional material weaknesses and significant deficiencies in the
future. If we fail to maintain the adequacy of our internal controls, including any failure to implement or difficulty in implementing
required new or improved controls, our business and results of operations could be harmed, the results of operations we report
could be subject to adjustments, we could incur further remediation costs, we could fail to be able to provide reasonable assurance
as to our financial results or the effectiveness of our internal controls, or fail to meet our reporting obligations under SEC
regulations on a timely basis and there could be a material adverse effect on the price of our common stock.

10

If our efforts, or those of third party service providers,
to maintain the privacy and security of our customer, confidential, or sensitive information are not successful at preventing
a significant data breach or cyber-attack, we could incur substantial additional costs, become subject to litigation, enforcement
actions or regulatory investigation, and suffer reputational damage.

Our business, like that of many others, involves the receipt,
storage and transmission of personal information and payment card information of our customers, confidential information about
our employees and suppliers, and other sensitive information about our company, such as our business plans, transactions and intellectual
property (confidential information). In addition, we provide confidential, proprietary and personal information to third party
service providers when it is necessary to pursue business objectives.

The methods used to obtain unauthorized access, disable or
degrade service, or sabotage systems are constantly changing and evolving, and may be difficult to anticipate or detect for long
periods of time. Cyber-attacks, such as denial of service, advanced persistent threats, other malicious attacks, unauthorized
access or distribution of confidential information by third parties or employees, errors or breaches by third party suppliers,
or other breaches of security could disrupt our internal systems and applications, impair our ability to provide services to our
customers, and protect the privacy and confidentiality of our sensitive information. Such attacks against companies are occurring
with greater frequency and may be perpetrated by a variety of groups or persons, including those in jurisdictions where U.S. law
enforcement is or has been unable to effectively address such attacks.

Although we regularly review our processes and procedures to
protect against unauthorized access to or use of sensitive data and to prevent data loss, the ever-evolving threat landscape requires
us to continually evaluate and adapt our systems and processes. We cannot assure you that the security measures and preventive
actions we take will be adequate to repel a significant attack, prevent information security breaches or the misuses of data,
unauthorized access by third parties or employees, or exploits against third party supplier environments. We may incur significant
costs, be subject to regulatory investigations, sanctions and private litigation, experience disruptions to our operations or
may suffer damage to our reputation that negatively impacts customer confidence as a consequence of such attacks. Although we
and our third party service providers have been subjected to unsuccessful cyber-attacks in the past that have not caused significant
harm to our company future cyber-attacks may materially adversely affect our business, results of operations and financial condition.

A natural disaster, terrorist attack, or other catastrophic
event could diminish our ability to provide service and hardware to our customers and our revenues may be impacted by weather
patterns and climate change.

Events such as severe storms, tornadoes, earthquakes, floods,
solar flares, industrial accidents, and terrorist attacks including, without limitation, the actions of computer hackers, could
damage or destroy both our primary and redundant facilities as well as the facilities and operations of third party cellular and
satellite carriers and hardware suppliers we are reliant on, which could result in a significant disruption of our operations.
Further, in the event of an emergency, the telecommunications networks that we rely upon may become capacity constrained or preempted
by governmental authorities. We may also be unable, due to loss of personnel or the inability of personnel to access our facilities,
to provide some services to our customers or maintain all of our operations for a period of time. With respect to our satellite-based
mobile asset tracking solution in particular, sales may be influenced by weather patterns and climate change. For example, if
government agencies and emergency responders anticipate relatively “mild” weather over one or more storm seasons on
account of cyclical weather patterns or long-term climate change, they may buy fewer of our mobile asset tracking units for deployment
in support of disaster response operations.

We are dependent on third party telecommunications service
providers and other suppliers, including domestic and international cellular and satellite carriers and hardware manufacturers,
the loss of any one of which could adversely impact our ability to supply or service our customers.

Our long-term success depends on our ability to operate, manage,
and maintain a reliable and cost effective network, as well as our ability to keep pace with changes in technology. As described
above, several wireless carriers have announced their intention to discontinue their 2G networks and fully deploy 3G, 4G and LTE
networks. We, through select network service providers, intend to continue supporting 2G through at least 2020. The loss or disruption
of key telecommunications infrastructure and key wireless and satellite-based network services supplied to us by carriers in the
U.S., Canada, and other locations would unfavorably impact our ability to adequately service our customers. If we experience technical
or logistical impediments to our ability to transfer traffic to third party facilities, or if our third party carriers experience
technical or logistical difficulties of their own, such as disruptions to their supply chains caused by weather events, natural
disasters, or terrorism, and are unable to carry our network traffic, we may not achieve our revenue goals or otherwise be successful
in growing our business. We may not be able to continue providing service to 2G customers and may not be able to successfully
transition 2G customers to other services. Given our dependence on cellular and satellite telecommunications service providers,
risks specific or unique to their technologies should also be viewed as having the potential to impair our ability to provide
services. For example, the loss or malfunction of a cell tower, a satellite, or a satellite ground station, could impair our ability
to provide services.

11

We outsource our hardware manufacture to independent companies
and do not have internal manufacturing capabilities to meet the demands of our customers. Any delay, interruption, or termination
of our hardware manufacture could harm our ability to provide our solutions to our customers and, consequently, could have a material
adverse effect on our business and operations. Our hardware manufacture requires specialized know-how and capabilities possessed
by a limited number of enterprises. Consequently, we are reliant on just a few manufacturers. If a key supplier experiences production
problems, financial difficulties, or has difficulties with its supply chain as a result of severe weather, a natural disaster,
terrorism, or other unforeseen event, we may not be able to obtain enough units to meet demand, which could result in failure
to meet our contractual commitments to our customers, further causing us to lose sales and generate less revenue.

Our operations and systems capabilities are dependent on
the use of cloud services and disruptions in access to cloud services could cause both revenue impacts and degradation of our
levels of customer service.

We rely heavily on both a private cloud service that we have
developed and maintain as well as various public cloud services provided by third parties. In all cases, while we and third parties
maintain redundant systems and backup databases and applications software in these redundant sites and we don’t expect to
experience downtime during which we or our customers will lack access to the cloud services, it is possible that access to the
software capabilities could become impaired if the cloud service goes down and becomes inaccessible. In that event, our customer
service would be impaired and this could affect our reputation as well as potentially our revenue generating capability. The extent
to which cloud service accessibility could be impaired would depend upon specific facts related to the cause of the downtime which
is prospectively indeterminate. However, in the event of a prolonged period of inaccessibility to our cloud services, an unfavorable
material impact on our revenues and our financial results from operations may occur.

We face substantial inventory and other asset risk in addition
to purchase commitment cancellation risk.

We record a write-down for product and component inventories
that have become obsolete or exceed anticipated demand or net realizable value and accrue necessary cancellation fee reserves
for orders of excess products and components. We also review our long-lived assets for impairment whenever events or changed circumstances
indicate the carrying amount of an asset may not be recoverable. If we determine that impairment has occurred, we record a write-down
equal to the amount by which the carrying value of the assets exceeds its fair market value. Although we believe the provisions
related to inventory, other assets and purchase commitments are currently adequate, no assurance can be given that we will not
incur additional related charges given the rapid and unpredictable pace of product obsolescence in the industries in which we
compete. Such charges could materially adversely affect our financial condition and operating results.

We are contractually obligated to provide certain of our manufacturers
with forecasts of our demand for components of our hardware solutions. Specific terms and conditions vary by contract, however,
if our forecasts do not result in the production of a quantity of units sufficient to meet demand we may be subject to contractual
penalties under certain of our contracts with our customers. By contrast, overproduction of units based on forecasts that overestimate
demand could result in an accumulation of excess inventory that, under some of our contracts with our customers, would have to
be managed at our expense thus adversely impacting our margins.

Excess inventory that becomes obsolete or that we are otherwise
unable to sell would also be subject to write-offs resulting in adverse effects on our margins. Because our markets are volatile,
competitive and subject to rapid technology and price changes, there is a risk that we will forecast incorrectly and order excess
or insufficient amounts of components or products, or not fully utilize firm purchase commitments. Our financial condition and
operating results could in the future be materially adversely affected by our ability to manage our inventory levels and respond
to short-term shifts in customer demand patterns.

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We provide product warranties to our customers which could
create a substantial demand on operations to process and could result in a material impact on our results.

We are required to provide repair or replacement services on
our equipment under managed service and warranty programs we offer to our customers. While our warranty obligations are passed
through to our vendors who manufacture equipment on our behalf and, in the past, these claims have had an immaterial impact on
our financial results from operations, there may be events in the future where we are required to take back equipment from customers
for which we may be required to absorb the cost of these returns, especially under customers’ managed service arrangements.
Consequently, there could be a financial cost in the future related to such returns that could cause a material impact on our
financial results from operations.

We may experience quality problems from time to time, resulting
in decreased sales and operating margins and the loss of customers.

While we test our products and services, they may still have
errors, defects, or bugs that we find only after commercial production has begun. In the past, we have experienced errors, defects,
and bugs in connection with new solutions. Our customers may not make purchases from us, or may make fewer purchases, if they
are concerned about such problems. Furthermore, correcting problems could require additional capital expenditures, result in increased
design and development costs, and force us to divert resources from other efforts. Failure to remediate problems could result
in lost revenue, harm our reputation, and lead to costly warranty or other legal claims against us by our customers, and could
have a material adverse impact on our financial condition and operating results. Historically, the time required for us to correct
problems has caused delays in product shipments and has resulted in lower than expected revenues.

Interruptions in service or performance problems, no matter
what their ultimate cause, could undermine confidence in our services and cause us to lose customers or make it more difficult
to attract new customers. In addition, because most of our customers are businesses, any significant interruption in service could
result in lost profits or other losses to our customers. It may also be difficult to identify the source of the problem due to
the overlay of our network with cellular, and/or satellite networks and our network’s reliance on those other networks.
The occurrence of hardware or software errors, regardless of whether such errors are caused by our hardware, solutions or services,
or our internal facilities, may result in the delay or loss of market acceptance of our solutions, and any necessary revisions
may result in significant and additional expenses. Although we attempt to disclaim or limit our liability in our agreements with
our customers, a court may not enforce these limitations, which could expose us to substantial losses. While some portion of these
claims and liability may be insured, we could face a material loss that could substantially impact or eliminate earnings and could
materially impair cash flow.

The quality of our support and services offerings is important
to our customers and if we fail to meet our service level obligations under our service level agreements or otherwise fail to
offer quality support and services, we would be subject to penalties and could lose customers.

Our customers generally depend on our service organization
to resolve issues relating to the use of our solutions. A high level of support is critical for the successful marketing and sale
of our solutions. If we are unable to provide a level of support and service to meet or exceed the expectations of our customers,
we could experience:

·

loss of customers
and market share;

·

difficulty
attracting or the inability to attract new customers, and

·

increased service
and support costs and a diversion of resources.

Any of the above results would likely have a material adverse
impact on our business, revenue, results of operations, financial condition and reputation.

We provide enterprise solutions and solutions that are resold
by our customers – primarily value-added resellers whose customers are end users of our solutions and distributors who sell
to other resellers of our solutions. Many of our customers, especially value-added resellers, operate on narrow margins and are
affected by overall economic conditions. Current economic conditions, while having improved recently, may deteriorate and negatively
impact demand for our customers’ solutions, reducing their demand for our solutions. Our customers may also face higher
financing and operating costs. If current economic conditions do not continue to improve, or alternatively, worsen, we may experience
reduced revenue growth or a decrease in revenues and an increase in expenses, particularly in the form of bad debts on the part
of our customers. All of these and other macroeconomic factors could have a material adverse effect on demand for our solutions
and on our financial condition and operating results.

13

Our operations are also influenced by the economic strength
of the housing sector, and to a lesser extent, the oil and gas, and automotive sectors. If improvements in the housing sector
are not sustained, sales of our residential and commercial alarm monitoring solutions may be impaired. If overall conditions do
not continue to improve, residential and commercial consumers may decide to cancel wireless monitoring services in an effort to
eliminate expenses viewed as discretionary or non-critical. Recent declines in the price of oil have depressed demand for certain
of our oil and gas products and solutions, and ongoing low oil prices may continue or exacerbate the decline in this market segment.
Similarly, a reversal of the recent improvement in vehicle sales would negatively impact sales of our vehicle tracking solutions.

We experience long sales cycles for some of our solutions.

Certain of our product offerings are subject to long sales
cycles in view of the need for testing of our hardware solutions and services in combination with our customers’ applications
and third parties’ technologies, the need for regulatory approvals and export clearances, and the need to resolve other
complex operational and technical issues. For example, in the government contracting arena, longer sales cycles are reflective
of the fact that government contracts can take months or longer to progress from a “request for proposal” to a finalized
contract document pursuant to which we are able to sell a finished product or service. Delays in sales could cause significant
variability in our revenue and operating results for any particular period. For that reason, quarter-over-quarter comparisons
of our financial results may not always be meaningful.

A portion of our future revenue, in particular the revenue
deriving from our sale of mobile asset and personal tracking solutions, may be derived from contracts with the U.S. government,
state governments, or government contractors. Those contracts are subject to uncertain funding.

The funding of government programs is uncertain and, at the
federal level, is dependent on continued congressional appropriations and administrative allotment of funds based on an annual
budgeting process. We cannot assure that current levels of congressional funding for programs supporting our offerings will continue,
particularly as a result of the Budget Control Act and the mandated substantial automatic spending cuts which began in 2013 and
will last for ten years, unless Congress modifies these cuts. In particular, a significant portion of our revenues from the sale
of satellite-based tracking solutions through our location-based services division has been derived from sales made by us indirectly
as a subcontractor to a prime government contractor that has the direct relationship with the U.S. government. In addition, these
cuts could adversely affect the viability of the prime contractor of our program. If the prime contractor loses business with
respect to which we serve as a subcontractor, our government business would be hurt.

Our operating results may be negatively affected by
developments affecting government programs generally, including the following:

·

changes in
government programs that are related to our hardware solutions and services;

·

adoption of
new laws or regulations relating to government contracting or changes to existing laws
or regulations; changes in political or public support for programs;

·

delays or changes
in the government appropriations process; and

·

delays in the
payment of invoices by government payment offices and the prime contractors.

These developments and other factors could cause governmental
agencies to reduce their purchases under existing contracts, to exercise their rights to terminate contracts at-will or to abstain
from renewing contracts, any of which would cause our revenue to decline and could otherwise harm our business, financial condition
and results of operations.

Government contracts contain provisions that are unfavorable
to us.

Government contracts contain provisions, and are subject to
laws and regulations, that give the government rights and remedies not typically found in commercial contracts. These provisions
may allow the government to

14

·

terminate existing
contracts for convenience, as well as for default;

·

reduce or modify
contracts or subcontracts;

·

cancel multi-year
contracts and related orders if funds for contract performance for any subsequent year
become unavailable;

·

decline to
exercise an option to renew a multi-year contract;

·

claim rights
in our hardware solutions and services;

·

suspend or
debar us from doing business with the federal government or with a governmental agency;
and

·

control or
prohibit the export of our hardware solutions and services.

If the government terminates a contract for convenience, we
may recover only our incurred or committed costs, settlement expenses and profit on work completed prior to the termination. If
the government terminates a contract for default, we may not recover even those amounts, and instead may be liable for excess
costs incurred by the government in procuring undelivered items and services from another source. We may experience performance
issues on some of our contracts. We may receive show cause or cure notices under contracts that, if not addressed to the government’s
satisfaction, could give the government the right to terminate those contracts for default or to cease procuring our services
under those contracts in the future.

Agreements with government agencies may lead to regulatory
or other legal action against us including, without limitation, claims against us under the Federal False Claims Act or other
federal statutes. These claims could result in substantial fines and other penalties.

We must comply with a complex set of rules and regulations
applicable to government contractors and their subcontractors. Failure to comply with an applicable rule or regulation could result
in our suspension of doing business with the government, or with the prime government contractors, or cause us to incur substantial
penalties. Our agreements with the U.S. government are subject to substantial financial penalties under the Civil Monetary Penalties
Act and the False Claims Act and, in particular, actions under the False Claims Act’s “whistleblower” provisions.
Private enforcement of fraud claims against businesses on behalf of the U.S. government has increased due in large part to amendments
to the False Claims Act that encourage private individuals to sue on behalf of the government. These whistleblower suits by private
individuals, known as qui tam actions, may be filed by almost anyone, including present and former employees. The False Claims
Act statute provides for treble damages and up to $11,000 per claim on the basis of the alleged claims. Prosecutions, investigations
or qui tam actions could have a material adverse effect on our liquidity, financial condition and results of operations.

Finally, various state false claim and anti-kickback laws also
may apply to us. Violation of any of the foregoing statutes can result in criminal and/or civil penalties that could have a material
adverse effect our business.

Economic and market conditions may adversely affect our
business and financial performance, as well as our access to financing on favorable terms or at all.

Our business and financial performance are sensitive to changes
in general economic conditions, including interest rates, consumer credit conditions, consumer debt levels, consumer confidence,
rates of inflation (or concerns about deflation), unemployment rates, economic growth, energy costs and other macro-economic factors.
Difficult, or worsening, general economic conditions could have a material adverse effect on our business, financial condition
and results of operations.

Market volatility, economic uncertainty, and weak economic
conditions may materially adversely affect our business and financial performance in a number of ways. Our services are available
to a broad customer base, a significant segment of which may be more vulnerable to weak economic conditions. We may have greater
difficulty in gaining new customers within this segment and existing customers may be more likely to terminate service due to
an inability to pay.

Weak economic conditions and credit conditions may also adversely
impact our suppliers and customers, some of which may be experiencing cash flow or liquidity problems or are unable to obtain
or refinance credit such that they may no longer be able to operate. Any of these could adversely impact our ability to distribute,
market, or sell our products and services.

15

In addition, instability in the global financial markets could
lead to periodic volatility in the credit, equity and fixed income markets. This volatility could limit our access to the credit
markets, leading to higher borrowing costs or, in some cases, the inability to obtain financing on terms that are acceptable to
us, or at all.

We may require additional capital to fund further development,
and our competitive position could decline if we are unable to obtain additional capital, or access the credit markets.

To address our long-term capital needs, we intend to continue
to pursue strategic relationships that would provide resources for the further development of our product candidates. There can
be no assurance, however, that these discussions will result in relationships or additional funding. In addition, we may seek
to raise capital through the public or private sale of securities, if market conditions are favorable for doing so. If we are
successful in raising additional funds through the issuance of equity securities, stockholders will likely experience dilution,
or the equity securities may have rights, preferences, or privileges senior to those of the holders of our common stock. If we
raise funds through the issuance of debt securities, those securities would have rights (directly or indirectly), preferences,
and privileges senior to those of our common stock.

Our loan agreement contains financial and operating restrictions
that may limit our access to credit. If we fail to comply with covenants in the loan agreement, we may be required to repay any
potential indebtedness thereunder, which may have an adverse effect on our liquidity and, in turn, may have a material adverse
effect on our financial condition and operating results.

We have substantial debt obligations. The loan
is guaranteed by certain of our subsidiaries and secured by substantially all of our assets. The loan
contains a number of customary affirmative and negative covenants and events of default, which, among other things,
restrict our ability, and our subsidiaries’ ability, to incur debt, allow liens on assets, make investments, pay
dividends or prepay certain other debt. The loan also requires that we comply with certain financial
maintenance covenants, including maintaining a minimum adjusted EBITDA, maximum consolidated total net leverage, and minimum
liquidity. We were not in compliance with our covenants as of December 31, 2016. We have obtained waivers of
non-compliance from Crystal Financial LLC. and amended our financial covenants as of March 31, 2017.

Our substantial level of debt and related obligations, including
interest payments, covenants and restrictions, could have important consequences, including by:

·

impairing our
ability to invest in and successfully grow our business and make acquisitions;

hindering our
ability to raise equity capital, because, in the event of a liquidation of our business,
debt holders have priority over equity holders;

·

increasing
our vulnerability to general economic downturns, competition and industry conditions,
which could place us at a competitive disadvantage compared to competitors that are less
leveraged and therefore we may be unable to take advantage of opportunities that our
leverage prevents us from exploiting;

·

imposing additional
restrictions on the manner in which we conduct our business, including restrictions on
our ability to pay dividends, incur additional debt and sell assets; and

·

placing us
at a possible disadvantage relative to less leveraged competitors and competitors that
have better access to capital resources.

The occurrence of any one of these events could have an adverse
effect on our business, financial condition, operating results or cash flows and ability to satisfy our obligations under our
indebtedness. Our failure to comply with the covenants under the loan could result in an event of default and the acceleration
of any debt then outstanding. Any declaration of an event of default could significantly harm our business and prospects and could
cause our stock price to decline. Insufficient funds may require us to delay, scale back or eliminate some or all of our activities.

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We rely on highly-skilled personnel throughout all levels
of our business. Our business could be harmed if we are unable to retain or motivate key personnel, hire qualified personnel or
maintain our corporate culture.

In our industry, there is substantial and continuous competition
for highly-skilled business, product development, technical, and other personnel. If any of our key employees were to leave, we
could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any successor
obtains the necessary training and experience. Our employment relationships are generally at-will and we have had key employees
leave in the past. We cannot assure you that one or more key employees will not leave in the future. We intend to continue to
hire additional highly qualified personnel, including engineers and operational personnel, but may not be able to attract, assimilate
or retain qualified personnel in the future. Any failure to attract, integrate, motivate and retain these employees could harm
our business.

We believe that our future success depends in substantial part
on our ability to recruit, hire, motivate, develop, and retain talented and highly-skilled personnel. Doing so may be difficult
due to many factors, including fluctuations in economic and industry conditions, competitors’ hiring practices, employee
tolerance for the significant amount of change within and demands on our company and our industry, and the effectiveness of our
compensation programs. Our continued ability to compete effectively depends on our ability to retain and motivate our existing
employees and to attract new employees. If we do not succeed in retaining and motivating our existing key employees and in attracting
new key personnel, we may not be able to meet our business plan and, as a result, our revenue growth and profitability may be
materially adversely affected.

If we achieve our growth goals, we may be unable to manage
our resulting expansion.

To the extent that we are successful in implementing our business
strategy, we may experience periods of rapid expansion and corresponding demand for our products. In order to effectively manage
growth, whether organic or through acquisitions, we will need to maintain and improve our operations, including the ability to
quickly scale our products, and effectively train and manage our employees. Our expansion through acquisitions is contingent on
successful management of those acquisitions, which will require proper integration of new employees, processes and procedures,
and information systems, which can be both difficult and demanding from an operational, managerial, cultural, and human resources
perspective. We must also expand the capacity of our sales and distribution networks in order to achieve continued growth in our
existing and future markets. The failure to manage growth effectively in any of these areas could have a material adverse effect
on our financial condition and operating results.

Risks related to Legal and Regulatory Matters

We are subject to risks associated with laws, regulations
and industry-imposed standards related to fixed and mobile communications devices and associated services.

Laws and regulations related to fixed and mobile communications
devices and associated services and end applications are extensive, vary by jurisdiction, and are subject to change. Such changes,
could include, without limitation, restrictions on the production, manufacture, distribution, and use of communications devices,
restrictions on the ability to port devices and associated services to new carriers’ networks, requirements to make devices
and associated services compatible with more than one carrier’s network, or restrictions on end use could, by preventing
us from fully serving affected markets, have a material adverse effect on our financial condition and operating results.

In particular, communication devices we sell, or which our
customers wish us to support, are subject to regulation or certification by governmental agencies such as the Federal Communications
Commission (FCC), industry standardization bodies such as the PCS Type Certification Review Board (PTCRB), and particular carriers
for use on their networks. The procedures for obtaining required regulatory approvals and certifications are extensive and time
consuming. The process of obtaining regulatory approval may require us to conduct additional testing, make modifications to our
hardware solutions and services, or cause a delay in product launch and shipment dates, any of which could have a material adverse
effect on our financial condition and operating results.

17

Our business is subject to a variety of U.S. and international
laws, rules, policies and other obligations regarding data protection.

We are subject to federal, state and international laws relating
to the collection, use, retention, security and transfer of personally identifiable information. In many cases, these laws apply
not only to third-party transactions, but also to transfers of information between us and our subsidiaries, and among us, our
subsidiaries and other parties with which we have commercial relations. Several jurisdictions have passed recent laws in this
area, and other jurisdictions are considering imposing additional restrictions. These laws continue to develop and may be inconsistent
from jurisdiction to jurisdiction. Complying with emerging and changing international requirements may cause us to incur substantial
costs or require us to change our business practices. Noncompliance could result in penalties or significant legal liability.

Our privacy policies and practices concerning the use and disclosure
of data are posted on our website. Any failure by us, our suppliers or other parties with whom we do business to comply with our
posted privacy policies or with other federal, state or international privacy-related or data protection laws and regulations
could result in proceedings against us by governmental entities or others, which could have a material adverse effect on our business,
results of operations and financial condition.

We are also subject to payment card association rules and obligations
under our contracts with payment card processors. Under these rules and obligations, if information is compromised, we could be
liable to payment card issuers for the cost of associated expenses and penalties. In addition, if we fail to follow payment card
industry security standards, even if no customer information is compromised, we could incur significant fines or experience a
significant increase in payment card transaction costs.

The issuance by the Internal Revenue Service and/or state tax
authorities of new tax regulations or changes to existing standards and actions by federal, state or local tax agencies and judicial
authorities with respect to applying applicable tax laws and regulations could impose costs on us that we are unable to fully
recover.

We are doing business in, and are expanding into, foreign tax
jurisdictions. We believe that we have complied in all material respects with our obligations to pay taxes in these jurisdictions.
If the applicable taxing authorities were to challenge successfully our current tax positions, or if there were changes in the
manner in which we conduct our activities, we could become subject to material unanticipated tax liabilities. We may also become
subject, prospectively or retrospectively, to additional tax liabilities following changes in tax laws. The application of existing,
new or future laws could have adverse effects on our business, prospects and operating results. There have been, and will continue
to be, substantial ongoing costs associated with complying with the various indirect tax requirements in the numerous markets
in which we conduct or will conduct business.

The loss of intellectual property protection, both in the
U.S. and internationally, could have a material adverse effect on our operations.

Our future success and competitive position depend upon our
ability to obtain and maintain intellectual property protection, especially with regard to our core business. We cannot be sure
that steps taken by us to protect our technology will prevent misappropriation of the technology. Our services are highly dependent
upon our technology and the scope and limitations of our proprietary rights therein. If our assertion of proprietary rights is
held to be invalid, or if another party’s use of our technology were to occur to any substantial degree, our business, financial
condition and results of operations could be materially adversely affected. In order to protect our technology, we rely on a combination
of patents, copyrights, and trade secret laws, as well as certain customer licensing agreements, employee and customer confidentiality
and non-disclosure agreements, and other similar arrangements. Loss of such protection could compromise any advantage obtained
and, therefore, impact our sales, market share, and results. To the extent that our licensees develop inventions or processes
independently that may be applicable to our hardware solutions and services, disputes may arise as to the ownership of the proprietary
rights to this information. These inventions or processes will not necessarily become our property, but may remain the property
of these licensees or their full-time employers. We could be required to make payments to the owners of these inventions or processes,
in the form of either cash or equity, or a combination of both.

Furthermore, our future or pending patent applications may
not be issued with the scope of the claims sought by us, if at all. In addition, others may develop technologies that are similar
or superior to our technology, duplicate our technology or design around the patents owned or licensed by us. Effective patent,
trademark, copyright, and trade secret protection may be unavailable or limited in foreign countries where we may need protection.

18

We rely on access to third-party patents and intellectual
property, and our future results could be materially adversely affected if we are unable to secure such access in the future.

Many of our hardware solutions and services are designed to
include third-party intellectual property, and in the future we may need to seek or renew licenses relating to such intellectual
property. Although we believe that, based on past experience and industry practice, such licenses generally can be obtained on
reasonable terms; there is no assurance that the necessary licenses would be available on acceptable terms or at all. Some licenses
we obtain may be nonexclusive and, therefore, our competitors may have access to the same technology licensed to us. If we fail
to obtain a required license or are unable to design around a patent, we may be unable to sell some of our hardware solutions
and services, and there can be no assurance that we would be able to design and incorporate alternative technologies, without
a material adverse effect on our business, financial condition, and results of operations.

Our competitors have or may obtain patents that could restrict
our ability to offer our solutions and services, or subject us to additional costs, which could impede our ability to offer our
solutions and services and otherwise adversely affect us. We may, from time to time, also be subject to litigation over intellectual
property rights or other commercial issues.

Several of our competitors have obtained and can be expected
to obtain patents that cover solutions and services directly or indirectly related to those offered by us. There can be no assurance
that we are aware of all patents containing claims that may pose a risk of infringement by its solutions and services. In addition,
in some cases, patent applications in the United States are kept confidential until a patent is issued and, accordingly, we cannot
fully evaluate the extent to which our solutions and services may infringe on future patent rights held by others.

Even with technology that we develop independently, a third
party may claim that we are using inventions covered by their patents and may go to court to stop us from engaging in our normal
operations and activities, such as engineering and development and the sale of any of our solutions and services. Furthermore,
because of technological changes in the IoT industry, current extensive patent coverage, and the rapid issuance of new patents,
it is possible that certain components of our solutions, services, and business methods may unknowingly infringe the patents or
other intellectual property rights of third parties. From time to time, we have been notified that we may be infringing such rights.

In the highly competitive and technology-dependent telecommunications
field in particular, litigation over intellectual property rights is a significant business risk, and some entities are pursuing
a litigation strategy the goal of which is to monetize otherwise unutilized intellectual property portfolios via licensing arrangements
entered into under threat of continued litigation. Regardless of merit, responding to such litigation can consume significant
time and expense. In certain cases, we may consider the desirability of entering into licensing agreements, although no assurance
can be given that such licenses can be obtained on acceptable terms or that litigation will not occur. If we are found to be infringing
such rights, we may be required to pay substantial damages. If there is a temporary or permanent injunction prohibiting us from
marketing or selling certain solutions and services or a successful claim of infringement against us requires us to pay royalties
to a third party, our financial condition and operating results could be materially adversely affected, regardless of whether
we can develop non-infringing technology. While in management’s opinion we do not have a potential liability for damages
or royalties from any known current legal proceedings or claims related to the infringement of patent or other intellectual property
rights that would individually or in the aggregate have a material adverse effect on our financial condition and operating results,
the results of such legal proceedings cannot be predicted with certainty. Should we fail to prevail in any of the matters related
to infringement of patent or other intellectual property rights of others or should several of these matters be resolved against
us in the same reporting period, our financial condition and operating results could be materially adversely affected.

We operate internationally, which subjects us to international
regulation and business uncertainties that create additional risk for us.

We have been doing business directly, or via our distributors,
primarily in the United States and North America, and are expanding, directly or via our distributors, into additional countries
worldwide. Accordingly, we or our distributors are subject to additional risks, such as:

·

an international
economic downturn;

·

export control
requirements, including restrictions on the export of critical technology;

We have only limited experience in marketing and operating
our services in certain international markets. Moreover, we have in some cases experienced and expect to continue to experience
in some cases higher costs as a percentage of revenues in connection with establishing and providing services in international
markets versus the U.S. In addition, certain international markets may be slower than the U.S. in adopting the outsourced communications
solutions and so our operations in international markets may not develop at a rate that supports our level of investments.

Furthermore, because regulatory schemes vary by country, we
may also be subject to regulations in foreign countries of which we are not presently aware. If that were to be the case, we could
be subject to sanctions by a foreign government that could materially and adversely affect our ability to operate in that country.
We cannot assure that any current regulatory approvals held by us are, or will remain, sufficient in the view of foreign regulatory
authorities, or that any additional necessary approvals will be granted on a timely basis or at all, in all jurisdictions in which
we operate or wish to operate, or that applicable restrictions in those jurisdictions will not be unduly burdensome. The failure
to obtain the authorizations necessary to operate satellites internationally could have a material adverse effect on our ability
to generate revenue and our overall competitive position. We, our customers and companies with which we do business may be required
to have authority from each country in which we or they provide services or provide our customers use of our hardware solutions
and services. Because regulations in each country are different, we may not be aware if some of our customers and/or companies
with which we do business do not hold the requisite licenses and approvals.

We purchase from vendors located outside of the United States
and consequently rely upon transportation from such vendors that is outside our control.

Several of the products we sell are manufactured by vendors
who are located outside of the United States. Transportation time varies considerably for these products, especially in the case
of transport involving ocean freight and local customs clearing processes in the country of origin. Both transportation and customs
issues which may cause delays are especially relevant and complicated for products sourced from manufacturers located in Asia.
As a result, we may face delays in committed deliveries that could either result in charges from our customers or, at times, cancelled
orders. While we have not had any incidence of meaningful cost related to such exposure to date, there can be no assurance that
there will not be a financial impact from such events in the future.

Results of legal proceedings could materially adversely
affect us.

We are involved in various legal proceedings and claims that
have arisen out of the ordinary conduct of our business. Results of legal proceedings cannot be predicted with certainty. Regardless
of its merit, litigation may be both time-consuming and disruptive to our operations and cause significant expense and diversion
of management attention. In recognition of these considerations, we may enter into material settlements. Should we fail to prevail
in certain matters, or should several of these matters be resolved against us in the same reporting period, we may be faced with
significant monetary damages or injunctive relief against us that would materially adversely affect a portion of our business
and might materially affect our financial condition and operating results.

Risks Related to Ownership of our Common Stock

Because our stock is held by a relatively small number
of investors and is thinly traded, it may be more difficult for shareholders to sell our shares or buy additional shares when
they desire and share prices may be volatile.

Our common stock is currently listed on the NASDAQ. Our
stock is thinly traded and we cannot guarantee that an active trading market will develop, or that it will maintain its current
market price. A large number of shares of our common stock are held by a small number of investors. An attempt to sell a large
number of shares by a large holder could materially adversely affect the price of our stock. In addition, it may be difficult
for a purchaser of our shares of our common stock to sell such shares without experiencing significant price volatility. Because
our shares are thinly traded, in some cases attempts to sell a large number of shares may be unsuccessful at any price due to
insufficient buy side demand to complete a sell side trade.

20

The exercise or conversion of outstanding stock options
and stock appreciation rights into common stock will dilute the percentage ownership of our other shareholders and the sale of
such shares may adversely affect the market price of our common stock.

As of March 30, 2017, there are outstanding stock options
and stock-settled stock appreciation rights to purchase an aggregate of approximately 1.5 million shares of our common stock and
more stock options and stock appreciation rights will likely be granted in the future to our officers, directors, employees and
consultants. We may issue warrants in connection with acquisitions, borrowing arrangements or other strategic or financial transactions.
The exercise of outstanding stock options, stock appreciation rights and warrants will dilute the percentage ownership of our
other shareholders. The exercise of these stock options, stock appreciation rights and warrants and the subsequent sale of the
underlying common stock could cause a decline in our stock price.

Our stock price may be volatile, and may fluctuate based
upon factors that have little or nothing to do with our business, financial condition and operating results.

The trading prices of the securities of communications companies
historically have been highly volatile, and the trading price of our common stock may be subject to wide fluctuations. Our stock
price may fluctuate in reaction to a number of events and factors that may include, among other things:

·

our or our
competitors’ actual or anticipated operating and financial results; introduction
of new products and services by us or our competitors or changes in service plans or
pricing by us or our competitors;

market perceptions
of the wireless communications industry and valuation models for us and the industry;

·

the availability
or perceived availability of additional capital in general and our access to such capital;

·

actual or anticipated
consolidation, or other strategic mergers or acquisition activities involving us or our
competitors or market speculations regarding such activities; and

·

disruptions
of our operations or service providers or other vendors necessary to our network operations;
the general state of the U.S. and world economies.

In addition, the stock market has been volatile in the recent
past and has experienced significant price and volume fluctuations, which may continue for the foreseeable future. This volatility
has had a significant impact on the trading price of securities issued by many companies, including companies in the communications
industry. These changes frequently occur irrespective of the operating performance of the affected companies. Hence, the trading
price of our common stock could fluctuate based upon factors that have little or nothing to do with our business, financial condition
and operating results.

The structure of our company limits the voting power of
our stockholders and certain factors may inhibit changes in control of our company.

The concentration of ownership of our common stock may have
the effect of delaying, deferring, or preventing a change in control, merger, consolidation, or tender offer that could involve
a premium over the price of our common stock. Currently, our executive officers, directors and greater-than-five percent stockholders
and their affiliates, in the aggregate, beneficially own approximately 49% of our outstanding common stock. These stockholders,
if they vote together, are able to exercise significant influence over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions and matters. The interests of these stockholders may
be different than those of our unaffiliated stockholders and our unaffiliated stockholders may be dissatisfied with the outcome
of votes that may be controlled by our affiliated stockholders.

21

Our articles of incorporation generally limit holdings by persons
of our common stock to no more than 10% without prior approval by our Board. Except as otherwise permitted by the Board, no stockholder
has the right to cast more than 10% of the total votes regardless of the number of shares of common stock owned. In addition,
if a person acquires holdings in excess of this ownership limit, our Board may terminate all voting rights of the person during
the time that the ownership limit is violated, bring a lawsuit against the person seeking divestiture of amounts in excess of
the limit, or take other actions as the Board deems appropriate. Our articles of incorporation also have a procedure that gives
us the right to purchase shares of common stock held in excess of the ownership limit. In addition, our articles of incorporation
permit our Board to authorize the issuance of preferred stock without stockholder approval. Any future series of preferred stock
may have voting provisions that could delay or prevent a change in control or other transaction that might involve a premium price
or otherwise be in the best interests of our common stockholders. In addition to inhibiting changes of control, the provisions
of our Articles of Incorporation may suppress the price of our shares.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

All of our facilities are leased. Set forth below is certain
information with respect to our leased facilities:

Location

Principal
Business

Square
Footage

LeaseExpiration

Atlanta, Georgia

Principal Executive Office – Facility is subleased under a short term agreement

10,450

2017

Atlanta, Georgia

Former Principal Executive Office –currently under sublease

47,062

2022

Dallas, Texas

Network Services, Engineering and Development and Sales

13,256

2018

Alpharetta, Georgia

Sales and Administrative

12,945

2017

Alpharetta, Georgia

Warehousing and Logistics

10,701

2019

Edmond, Oklahoma

Network Services and Sales/Support

1,000

2017

Doylestown, Pennsylvania

Sales and Administrative

905

2017

We conduct engineering, sales and marketing, and administrative
activities at many of these locations.We believe that our existing facilities are adequate for our current needs.
As we grow and expand into new markets and develop additional hardware, we may require additional space, which we believe will
be available at reasonable rates.

We engage in limited manufacturing, equipment and hardware
assembly and testing for certain hardware. We also use contract manufacturers for production, sub-assembly and final assembly
of certain hardware and a third-party logistics service provider to manage a portion of our inventory. We believe there are other
manufacturers and service providers that could perform this work on comparable terms.

Item 3. Legal Proceedings.

From time to time we may become involved in legal proceedings
or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings
that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating
results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse effect on us because of
defense and settlement costs, diversion of management resources and other factors.

Item 4. Mine Safety Disclosures.

Not applicable.

22

PART II

Item 5. Market for the Registrant's
Common Stock and Related Shareholder Matters and Issuer Purchases of Equity Securities.

The Company’s Common Stock trades publicly on the NASDAQ
Global Market System under the symbol “NMRX”.

The following table sets forth, for the fiscal quarters indicated,
the high and low sales prices per share for the Common Stock on the NASDAQ Global Market for the applicable periods.

Fiscal 2016

High

Low

First Quarter (January 1 to March 31, 2016)

$

7.34

$

5.68

Second Quarter (April 1 to June 30, 2016)

8.37

5.96

Third Quarter (July 1 to September 30, 2016)

8.36

6.49

Fourth Quarter (October 1 to December 31, 2016)

9.01

6.65

Fiscal 2015

High

Low

First Quarter (January 1 to March 31, 2015)

$

11.60

$

10.01

Second Quarter (April 1 to June 30, 2015)

12.31

8.16

Third Quarter (July 1 to September 30, 2015)

9.50

7.79

Fourth Quarter (October 1 to December 31, 2015)

9.25

5.91

On March 30, 2017, the last reported sale price of our
Class A common stock on The NASDAQ Global Market was $4.53 per share.

As of March 30, 2017, there were approximately 119
holders of record of our Common Stock and 19.6 million shares of Common Stock outstanding. Because many of the shares of our
common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number
of stockholders represented by these record holders.

Dividend Policy

We currently do not pay any cash dividends. In deciding whether
or not to declare or pay dividends in the future, the Board of Directors will consider all relevant factors, including our earnings,
financial condition and working capital, capital expenditure requirements, any restrictions contained in loan agreements and market
factors and conditions. We have no plans now or in the foreseeable future to declare or pay cash dividends on our common stock.

23

Performance Graph

The following graph shows a comparison of the cumulative total
shareholder return on our common stock, the NASDAQ Composite Index and the NASDAQ Telecomm Index, over the preceding five-year
period. The indices assume the reinvestment of all dividends.

The comparison of total return on investment (change in year-end
stock price plus reinvested dividends) assumes that $100 was invested on December 31, 2011 in our common stock, the
NASDAQ Composite Index and the NASDAQ Telecomm Index.

The corporate performance graph and related information shall
not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated
by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate
it by reference into such filing.

24

Item 6. Selected Consolidated Financial
Data.

The following selected financial data should be read in
conjunction with the consolidated financial statements and the notes contained in “Item 8. Financial Statements and Supplementary
Data” and the information contained in “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in this Annual Report on Form 10-K. Historical results are not necessarily indicative of future
results.

The following financial information was derived using the consolidated
financial statements of Numerex Corp. The table lists historical financial data of the Company for each of the five years in the
period ended December 31, 2016.

25

As of and For the Years
Ended December 31,

(in thousands except per share data)

2016

2015

2014(1)

2013

2012

Statement of Operations Data

Net revenues

$

70,645

$

89,450

$

93,869

$

77,832

$

65,032

Gross profit (2)

34,114

38,441

43,264

32,140

27,875

Impairment of goodwill and other intangible assets

12,005

2,712

-

-

-

Restructuring charges

1,831

-

-

-

-

Operating (loss) income

(22,802

)

(8,583

)

2,115

(419

)

2,967

(Loss) income from continuing operations before
income taxes

(24,660

)

(9,255

)

2,655

(404

)

2,131

Income tax expense (benefit)
(3)

(340

)

9,902

419

(2,369

)

(4,902

)

(Loss) income from continuing operations, net
of income taxes

(24,320

)

(19,157

)

2,236

1,965

7,033

(Loss) income from discontinued operations, net
of income taxes

-

-

(492

)

(1,380

)

132

Net (loss) income

(24,320

)

(19,157

)

1,744

585

7,165

Basic (loss) earnings per share:

(Loss) income from continuing operations

$

(1.25

)

$

(1.00

)

$

0.12

$

0.11

$

0.46

Loss from discontinued operations

-

(0.03

)

(0.08

)

-

Net (loss) income

$

(1.25

)

$

(1.00

)

$

0.09

$

0.03

$

0.46

Diluted (loss) earnings per share:

(Loss) income from continuing operations

$

(1.25

)

$

(1.00

)

$

0.12

$

0.10

$

0.44

(Loss) income from discontinued
operations

-

(0.03

)

(0.07

)

0.01

Net (loss) income

$

(1.25

)

$

(1.00

)

$

0.09

$

0.03

$

0.45

Balance Sheet Data

Cash, cash equivalents, and short term investments

$

9,285

$

16,237

$

17,270

$

25,603

$

4,948

Total assets

91,477

111,187

130,943

101,290

72,147

Total short- and long-term debt and capital lease obligations

17,248

18,909

23,749

1,562

8,294

Shareholders' equity

51,264

72,596

88,862

83,977

52,805

Cash Flow Data

Net cash provided by (used in) continuing operations

(492

)

8,877

10,456

6,088

1,924

(1)

On May 5, 2014, we acquired the business operations
of Omnilink, the financial results of which have now been included in our results. The
consolidated financial data, as reported and shown above, include results from Omnilink
since the date of acquisition. Included in the 2014 financial data shown above are revenues,
cost of revenues and gross profit related to Omnilink of $8.7 million, $3.8 million and
$4.9 million, respectively.

(2)

Gross profit for the year ended December 31, 2015
includes a $1.3 million impairment of other assets. See Note H- Prepaid Expenses and
Other Assets in the accompanying consolidated financial statements.

26

(3)

During the year ended December 31, 2015, we recognized
$9.9 million in deferred income tax expense to record a valuation allowance against certain
deferred tax assets. See Note K – Income Taxes
in the accompanying consolidated financial statements. During the year ended December 31, 2013, we recognized a $2.4 million
deferred income tax benefit from a tax accounting method change allowing a one-time acceleration
and catch-up of depreciation and amortization expense. During the year ended December
31, 2012, we recognized a deferred income tax benefit of $4.9 million from the release
of a valuation allowance against certain deferred tax assets.

Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.

This management’s discussion and analysis of financial
condition and results of operations contains forward-looking statements that involve risks and uncertainties. See “Forward
Looking Statements” on page 4 for a discussion of the uncertainties, risks and assumptions associated with these statements.
You should read the following discussion in conjunction with our historical consolidated financial statements and the notes thereto
appearing elsewhere in this Annual Report. The results of operations for the periods reflected herein are not necessarily indicative
of results that may be expected for future periods and our actual results may differ materially from those discussed in the forward-looking
statements as a result of various factors, including but not limited to those listed under “Risk Factors” in Section
1A of this Annual Report.

Overview

We are a holding company and, through our subsidiaries, are
a single source, leading provider of managed enterprise solutions enabling the Internet of Things (IoT). We empower enterprise
operations with world-class, managed IoT solutions that are simple, innovative, scalable and secure. An IoT solution is generally
viewed as a combination of devices, software and services that operate with little or no human interaction. Our solutions incorporate
each of the four key IoT building blocks – Device, Network, Application and Platform.

Our network services are provided through cellular, satellite,
broadband and wireline networks. Cellular networks include national and regional carriers and consist of second (2G), third (3G)
and fourth generation (4G and LTE) technology. Several wireless carriers have announced their intention to discontinue their 2G
networks and fully deploy 3G and 4G networks between 2016 and 2020 while other carriers have announced their intention to discontinue
2G networks as early as 2020. We intend to continue support existing 2G customers through the transition to subsequent technology.
Additionally, we have introduced 3G/4G products offering advanced services across our product lines.

Beginning in the third quarter of 2015, we began to concentrate
on selling higher margin, integrated managed service subscriptions that include the full suite of our devices, networks, applications
and platform while moving away from the sale of individual components – especially hardware only. We expect this strategic
change to help us grow sustainable service revenue along with corresponding gross margins. However, our hardware revenues declined
significantly as expected in 2016, and we expect that hardware revenues will remain relatively modest as compared to historical
levels thereafter.

On May 5, 2014, we merged with the
business operations of Omnilink. Omnilink provides tracking and monitoring services for people and valuable assets via Omnilink’s
proprietary IoT platform that connects hardware, networks, software, and support services. The consolidated financial data, as
reported and shown above, include results of Omnilink from the date of acquisition. The merger consideration was $37.5 million
cash.

During the year ended December 31, 2016, we had revenues of
$70.6 million and net loss of $24.3 million. This compares with revenues of $89.5 million and net loss of $19.2 million
for the year ended December 31, 2015.

Our core strategy is to generate long term and sustainable
recurring revenue through a portfolio of managed, end-to-end IoT solutions which are generally sold on a subscription basis and
built on our horizontal, integrated platform. Our solutions incorporate the key IoT building blocks – Device, Network, Application
and Platform. Our solutions also simplify the implementation and improve the speed to market for enterprise users in select, targeted
verticals in the asset monitoring and optimization, asset tracking, and safety and security markets.

Our strategy requires significant capital investment to develop
and enhance our use of technology and to maintain our leadership position and competitive advantage in the markets we serve.

Subscription revenue is recognized monthly as services are
provided and sales of embedded devices and hardware are recognized when title passes. Other upfront payment revenue is deferred
and amortized on a straight line basis.

27

Due to fluctuations of the commencement of new contracts and
renewal of existing contracts, we expect variability of sequential quarterly trends in revenues, margins and cash flows. Other
factors contributing to sequential quarterly trends include usage, rate changes, and repricing of contract renewals and technology
changes.

Cost of sales for the year ended December 31, 2016 includes
an increase in the inventory reserve of $0.5 million and a significant decrease in cost of revenue for embedded devices and hardware
of $10.0 million associated with the decrease in hardware revenues.

During the year ended December 31, 2016, management
evaluated and determined that the Omnilink and Do-It-Yourself (DIY) product lines and reporting units should be tested at
June 30, 2016 for impairment as a result of lower than expected operating results, which are related to strategic changes and
delays associated with the launch of a new personal tracking product line. Management initiated a quantitative two-step
goodwill impairment test by comparing the carrying value of the net assets of the respective units to its fair value based on
a discounted cash flow analysis. Based on our assessment, we determined that the fair value of these reporting units were
less than the respective carrying value and that goodwill was impaired, and recorded $4.2 million in impairment charges
for trade names, technology and goodwill as of June 30, 2016, comprised of impairments of $1.6 million for indefinite-lived
trade names and $2.3 million for goodwill of the Omnilink reporting unit, and $0.1 million for technology and $0.2 million
for goodwill of the DIY reporting unit.

As part of our annual assessment of goodwill at
December 1, 2016, the carrying values of our Omnilink and DIY reporting units were found to be greater than their calculated
fair values. Accordingly, we performed a Step 2 analysis for these reporting units and recorded goodwill impairment of $7.4
million for our Omnilink reporting unit. No impairment was recorded as a result of the Step 2 analysis for the DIY reporting
unit. Also as part of our December 1, 2016 assessment we recorded $0.4 million of impairment related to the Omnilink Trade
Name. The decrease in the fair value of the DIY reporting unit was principally due to the reporting unit not generating
results of operations consistent with our expectations and previous forecasts. The decrease in the fair value of the Omnilink
reporting unit was due to two customers’ contracts which were not renewed during December 2016.

Historically, our revenues and expenses in the first quarter
have been modestly affected by slowing of customer purchase activities during the holidays. As a result, historical quarterly
fluctuations may not be indicative of future operating results.

As part of our effort to build and enhance our core business,
we conduct ongoing business strategy reviews. During our review, we consider opportunities for growth in existing and new markets
that may involve growth derived from both existing operations as well as from future acquisitions, if any. To the extent existing
business lines and service offerings are not considered to be compatible with delivery of our core business services or with meeting
our financial objectives, we may exit non-core lines of business or stop offering these services in part or in whole.

28

Results of Operations

The following table sets forth selected financial data from
our consolidated statements of operations and comprehensive (loss) income for the periods presented along with percentage change
between the periods (dollars in thousands):

Years ended December
31,

2016 vs. 2015

2015 vs. 2014

2016

2015

2014

% Change

% Change

Net revenues:

Subscription and support revenues

$

58,019

82.1

%

$

64,371

72.0

%

$

65,020

69.3

%

-9.9

%

-1.0

%

Embedded devices and hardware

12,626

17.9

%

$

25,079

28.0

%

28,849

30.7

%

-49.7

%

-13.1

%

Total net revenues

70,645

100.0

%

89,450

100.0

%

93,869

100.0

%

-21.0

%

-4.7

%

Cost of revenue

Subscription and support revenues

22,986

32.5

%

$

25,410

28.4

%

25,371

27.0

%

-9.5

%

0.2

%

Embedded devices and hardware

13,004

18.4

%

$

22,981

25.7

%

24,690

24.5

%

-43.4

%

-6.9

%

Inventory reserves

541

0.8

%

$

1,343

1.5

%

544

1.4

%

-59.7

%

146.9

%

Impairment of other asset

-

0.0

%

$

1,275

1.4

%

-

0.0

%

(100.0

)%

100.0

%

Gross profit

34,114

48.3

%

38,441

43.0

%

43,264

47.1

%

-11.3

%

-11.1

%

Operating expenses:

Sales and marketing

13,318

18.9

%

12,446

13.9

%

11,876

12.7

%

7.0

%

4.8

%

General and administrative

13,998

19.8

%

15,798

17.7

%

15,063

16.0

%

-11.4

%

4.9

%

Engineering and development

9,224

13.1

%

8,952

10.0

%

8,009

8.5

%

3.0

%

11.8

%

Depreciation and amortization

6,540

9.3

%

7,116

8.0

%

6,201

6.6

%

-8.1

%

14.8

%

Impairment of goodwill and other intangible assets

12,005

17.0

%

2,712

3.0

%

-

0.0

%

342.6

%

100

%

Restructuring charges

1,831

2.6

%

-

0.0

%

-

0.0

%

100.0

%

0.0

%

Operating (loss) income

(22,802

)

-32.3

%

(8,583

)

-9.6

%

2,115

3.2

%

165.7

%

-505.8

%

Interest expense

1,698

2.4

%

806

0.9

%

798

0.9

%

110.7

%

1.0

%

Loss on extinguishment of debt

290

0.4

%

-

0.0

%

-

0.0

%

100.0

%

0.0

%

Other income, net

(130

)

-0.2

%

(134

)

-0.1

%

(1,338

)

-1.4

%

-3.0

%

-90.0

%

(Loss) income from continuing operations, before income
taxes

(24,660

)

-34.9

%

(9,255

)

-10.3

%

2,655

3.8

%

166.4

%

-448.6

%

Income tax expense (benefit)

(340

)

-0.5

%

9,902

11.1

%

419

0.4

%

-103.4

%

2263.2

%

(Loss) income from continuing operations, net of income
taxes

(24,320

)

-34.4

%

(19,157

)

-21.4

%

2,236

3.4

%

27.0

%

-956.8

%

Loss from discontinued operations,
net of income taxes

-

0.0

%

-

0.0

%

(492

)

-0.5

%

0.0

%

-100.0

%

Net (loss) income

$

(24,320

)

-34.4

%

$

(19,157

)

-21.4

%

$

1,744

2.8

%

27.0

%

-1198.5

%

Adjusted EBITDA(1)

$

2,310

3.3

%

$

9,321

10.4

%

$

12,621

0.8

%

-75.2

%

-26.1

%

(1)

Adjusted EBITDA is not a financial measure prepared
in accordance with accounting principles generally accepted in the United States of America
(GAAP). See further discussion, including reconciliation to the most comparable GAAP
measure, under the caption Non-GAAP Financial Measures below.

29

Comparison of Fiscal Years Ended December 31, 2016 and December
31, 2015

During 2016, total revenue decreased $18.8 million, or 21.0%,
to $70.6 million from $89.4 million in 2015. The decrease in revenue is primarily attributable to lower hardware sales which declined
$12.5 million or 49.7% to $12.6 million from $25.1 million in 2015. This decline in hardware sales was primarily due to a strategic
shift in how we sell our products and services. In the third quarter of 2015, we began to concentrate on selling higher margin,
integrated managed service subscriptions that include the full suite, or subsets, of our devices, networks, applications and platform
while moving away from the sale of individual components – especially hardware only.

Subscription and support revenues decreased $6.4 million, or
9.9%, to $58.0 million from $64.4 million in 2015. The decrease reflects losses associated with network customers’ 2G conversions
and pricing pressure on certain security product lines, which resulted in a lower price point. The decrease in revenue is also
attributed to the shift to the integrated managed service subscription offerings.

Direct cost of subscription and support revenue for the years
ended December 31, 2016 and 2015 decreased by $2.4 million or 9.5% to $23.0 million from $25.4 million in 2015. Subscription and
support revenue less direct costs was $35.0 million, or 60.4% of subscription and support revenue for the year ended December
31, 2016 compared to $39.0 million, or 60.5% for the year ended December 31, 2015. In addition to lower direct costs associated
with lost 2G conversions, we also had a larger proportional decrease in direct cost of subscription and support due in part to
lower negotiated network and carrier costs and our strategic efforts to sell higher margin integrated managed services.

Direct cost of sales for embedded devices and hardware
decreased $10.0 million, or 43.4% to $13.0 million for the year ended December 31, 2016 compared to $23.0 million for the year
ended December 31, 2015. Embedded devices and hardware revenue less direct costs was ($0.4 million), or (3.0%) of embedded devices
and hardware revenue for the year ended December 31, 2016 compared to $2.1 million, or 8.4% for the year ended December 31, 2015.
The overall decrease in direct costs is due to lower corresponding revenues.

Inventory reserves decreased $0.8 million to $0.5 million as
of December 31, 2016 compared to $1.3 million as of December 31, 2015. Inventory reserves have been presented separately
within cost of sales due to a significant charge during the year ended December 31, 2015. As described in the Overview
above, we entered into new and amended agreements with wireless carriers in September 2015. As a result of these agreements, we
performed a lower of cost or market analysis leading to a significant increase in the inventory reserve of $1.3 million as of
December 31, 2015 related to older, 2G cellular telecommunications devices and older satellite devices as well as an accrual for
a purchase commitment related to raw materials for the older satellite devices that we will not fulfill. In addition, one of the
amended carrier agreements led to settlement of a pre-existing relationship and a $1.3 million impairment of a prepaid expense
during the year ended December 31, 2015. The prepaid expense was previously recorded in other assets.

Sales and marketing expense increased $0.9 million to $13.3
million for the year ended December 31, 2016 compared to $12.4 million for the same period in 2015. As a percentage of net revenues,
sales and marketing expenses increased to 18.9% for the year ended December 31, 2016 compared to 13.9% for the year ended December
31, 2015. The increase is primarily attributable to hiring of sales and marketing personnel to promote our new integrated managed
services model.

General and administrative expenses decreased $1.8 million
to $14.0 million for the year ended December 31, 2016 compared to $15.8 million for the same period in 2015. The decrease includes
a reduction of facility expenses of $0.6 million related to the relocation nof our corporate headquarters, as well as a $0.5 million
reduction in salaries. The remaining decrease is primarily due to decreases in other professional fees.

Engineering and development expenses increased $0.3 million
to $9.2 million for the year ended December 31, 2016 compared to $9.0 million for the same period in 2015. As a percentage of
net revenues, engineering and development expenses increased to 13.0% for the year ended December 31, 2016 compared to 10.0% for
the year ended December 31, 2015. The increase was primarily driven by the continued development associated with newly introduced
product lines.

Depreciation and amortization expense decreased $0.6 million,
or 8.1%, to $6.5 million for the year ended December 31, 2016 compared to $7.1 million for the same period in 2015.

30

The $12.0 million and $2.7 million impairments of goodwill
and other intangible assets recorded for the year ended December 31, 2016 and 2015, respectively, were related to our
Omnilink and DIY goodwill and trade names as described in the Overview above.

We recorded restructuring charges of $1.8
million, which includes $0.8 million related to facilities, $0.9 million in severance costs and $0.1 million related to scrap
expense for inventory on a product line we will no longer continue to pursue. The restructuring charge for facilities of $0.8
million is comprised of $0.4 million for broker and other related fees and $0.4 million non-cash charge for the estimated August
1, 2016 net book value of furniture, fixtures and leasehold improvements, as well as moving costs. Our temporary new corporate
headquarters office space, effective July 15, 2016, is under a one-year lease agreement.

Other income remained consistent at $0.1 million for the year
ended December 31, 2016, and 2015, respectively.

We recorded a provision for income tax benefit of $0.3 million
for the year ended December 31, 2016, $9.9 million in expense for the year ended December 31, 2015, and $0.4 million in expense
for the year ended December 31, 2014. The effective tax rates were (1.4) %, 106.6% and 15.8% for the years ended December
31, 2016, 2015 and 2014, respectively. The effective tax rate for the year ended December 31, 2016 differed from the federal statutory
rate of 34% primarily as a result of recording the valuation allowance for net deferred tax assets and the goodwill impairment
recognized for the year ended December 31, 2016.

Comparison of Fiscal Years Ended December 31, 2015 and December
31, 2014

During 2015, total revenue decreased $4.4 million, or 4.7%,
to $89.5 million from $93.9 million in 2014. The decrease in revenue is primarily attributable to lower hardware sales which declined
$3.8 million or 13.1% to $25.1 million from $28.8 million in 2014. This decline in hardware sales was primarily due to a strategic
shift in how we sell our products and services. In the third quarter of 2015, we began to concentrate on selling higher margin,
integrated managed service subscriptions that include the full suite, or subsets, of our devices, networks, applications and platform
while moving away from the sale of individual components – especially hardware only.

Subscription and support revenues decreased $0.6 million, or
1.0%, to $64.4 million from $65.0 million in 2014. The decrease is primarily attributable to declines in network only customers
of $2.1 million. The decrease reflects losses associated with network customers’ 2G conversions at a time when we did not
have a competitive offer during the year until the fourth quarter of 2015. The decrease in revenue is also attributed to the shift
to the integrated managed service subscription offerings. The declines in network only customers were partially offset by an increase
in revenues of $1.5 million from our introduction of new product lines, including those recently acquired.

Direct cost of subscription and support revenue for the years
ended December 31, 2015 and 2014 remained constant at $25.4 million. Subscription and support revenue less direct costs was $39.0
million, or 60.5% of subscription and support revenue for the year ended December 31, 2015 compared to $39.6 million, or 61.0%
for the year ended December 31, 2014. The decreases are primarily due to a full year of Omnilink cost of subscription and support
revenue, partially offset by lower costs due to the loss of revenue associated with 2G customers as described above and a modest
reduction in carrier fees affecting just the fourth quarter of 2015.

Direct cost of revenue for embedded devices and hardware decreased
$1.7 million, or 6.9% to $23.0 million for the year ended December 31, 2015 compared to $24.7 million for the year ended December
31, 2014. Embedded devices and hardware revenue less direct costs was $2.1 million, or 8.4% of embedded devices and hardware revenue
for the year ended December 31, 2015 compared to $4.2 million, or 14.4% for the year ended December 31, 2014. The overall decrease
in direct costs is due to lower corresponding revenues; however, the increase as a percentage of the corresponding revenue is
due to a strategic shift in how we sell our products and services as is described above.

Expense for inventory reserves increased $0.8 million to $1.3
million for the year ended December 31, 2015 compared to $0.5 million for the same period in 2014. Inventory reserves are a separate
caption in cost of revenue because of a significant charge during the year ended December 31, 2015. As described in the Overview
above, we entered into new and amended agreements with wireless carriers in September 2015. As a result of these agreements, we
performed a lower of cost or market analysis leading to a significant increase in the inventory reserve of $1.3 million during
the year ended December 31, 2015 related to older, 2G cellular telecommunications devices and older satellite devices as well
as an accrual for a purchase commitment related to raw materials for the older satellite devices that we will not fulfill. In
addition, one of the amended carrier agreements led to settlement of a pre-existing relationship and a $1.3 million impairment
of a prepaid expense during the year ended December 31, 2015. The prepaid expense was previously recorded in other assets.

31

Sales and marketing expense increased $0.5 million to $12.4
million for the year ended December 31, 2015 compared to $11.9 million for the same period in 2014. As a percentage of net revenues,
sales and marketing expenses increased to 13.9% for the year ended December 31, 2015 compared to 12.7% for the year ended December
31, 2014. The increase is primarily attributable to hiring of sales and marketing personnel to promote our new integrated managed
services model.

General and administrative expenses increased $0.7 million
to $15.8 million for the year ended December 31, 2015 compared to $15.1 million for the same period in 2014. As a percentage of
net revenues, general and administrative expenses increased to 17.7% for the year ended December 31, 2015 compared to 16.0% for
the year ended December 31, 2014. The increase includes the effect of recently acquired product lines as well as $0.6 million
for relocation and other executive recruiting costs. General and administrative expense for the year ended December 31, 2015 includes
$0.4 million in other professional fees and transaction costs compared to $1.1 million for the comparable period in 2014.

Engineering and development expenses increased $1.0 million
to $9.0 million for the year ended December 31, 2015 compared to $8.0 million for the same period in 2014. As a percentage of
net revenues, engineering and development expenses increased to 10.0% for the year ended December 31, 2015 compared to 8.5% for
the year ended December 31, 2014. The increase was primarily driven by the continued development associated with newly introduced
product lines, with an increase in salaries of $0.8 million for newly hired employees as well as an increase of $0.2 million in
contract labor. The increase also includes the effect of recently acquired product lines.

Depreciation and amortization expense increased $0.9 million,
or 14.8%, to $7.1 million for the year ended December 31, 2015 compared to $6.2 million for the same period in 2014. The increase
in depreciation and amortization expense is related to recently acquired product lines and development of new product and project
initiatives, including the amortization of new intangible assets. The increase also includes $0.4 million for hardware used by
a financially troubled customer at risk of not being returned to us.

The $2.7 million impairment of goodwill and other intangible
assets recorded for the year ended December 31, 2015 was related to our DIY reporting unit and Omnilink trade names and technology
as described in the Overview above.

Other income, net decreased $1.2 million for the year ended
December 31, 2015 compared to 2014. The decrease is related to a pre-tax gain of $1.1 million on the sale of a cost method investment
in a privately-held business during the year ended December 31, 2014. The carrying value of the investment was $0.2 million and
was sold for $1.3 million.

We recorded a provision for income tax expense of $9.9 million
for the year ended December 31, 2015 and $0.4 million for the year ended December 31, 2014. The effective tax rates were 106.6%
and 15.8% for the year ended December 31, 2015 and 2014, respectively. The effective tax rate for the year ended December 31,
2015 differed from the federal statutory rate of 34% primarily as a result of recording the valuation allowance for net deferred
tax assets.

Non-GAAP Financial Measures

Earnings before interest, taxes, depreciation and amortization
expenses (EBITDA) and Adjusted EBITDA, which are presented below, are non-GAAP measures and do not purport to be alternatives
to operating income as a measure of operating performance. We believe EBITDA, Adjusted EBITDA and Adjusted EBITDA per diluted
share are useful to and used by investors and other users of the financial statements in evaluating our operating performance
because it provides them with an additional tool to compare business performance across periods.

We believe that:

·

EBITDA is widely
used by investors to measure a company’s operating performance without regard to
items such as interest, income tax, and depreciation and amortization expenses, which
can vary substantially from company-to-company depending upon accounting methods and
book value of assets, capital structure and the method by which assets were acquired;
and

·

Investors commonly
adjust EBITDA information to eliminate the effect of equity-based compensation and other
unusual or infrequently occurring items which vary widely from company-to-company and
impair comparability.

32

We use EBITDA, Adjusted EBITDA and Adjusted EBITDA per diluted
share:

·

as a measure
of operating performance to assist in comparing performance from period-to-period on
a consistent basis

·

as a measure
for planning and forecasting overall expectations and for evaluating actual results against
such expectations; and

·

in communications
with the board of directors, analysts and investors concerning our financial performance.

Although we believe, for the foregoing reasons, that the presentation
of non-GAAP financial measures provides useful supplemental information to investors regarding our results of operations, the
non-GAAP financial measures should only be considered in addition to, and not as a substitute for, or superior to, any measure
of financial performance prepared in accordance with GAAP.

Use of non-GAAP financial measures
is subject to inherent limitations because they do not include all the expenses that must be included under GAAP and because they
involve the exercise of judgment of which charges should properly be excluded from the non-GAAP financial measure. Management
accounts for these limitations by not relying exclusively on non-GAAP financial measures, but only using such information to supplement
GAAP financial measures. The non-GAAP financial measures may not be the same non-GAAP measures, and may not be calculated in the
same manner, as those used by other companies.

Adjusted EBITDA is calculated by excluding
the effect of equity-based compensation and non-operational items from the calculation of EBITDA. Management believes that this
measure provides additional relevant and useful information to investors and other users of our financial data in evaluating the
effectiveness of our operations and underlying business trends in a manner that is consistent with management’s evaluation
of business performance.

We believe that excluding depreciation and amortization expenses
of property, equipment and intangible assets to calculate EBITDA and Adjusted EBITDA provides supplemental information and an
alternative presentation that is useful to investors’ understanding of our core operating results and trends. Not only are
depreciation and amortization expenses based on historical costs of assets that may have little bearing on present or future replacement
costs, but also they are based on our estimates of remaining useful lives.

We believe that adding back the effects of equity-based compensation to arrive at Adjusted EBITDA provides supplemental information and an alternative presentation
useful to investors’ understanding of our core operating results and trends. Investors have indicated that they consider
financial measures of our results of operations excluding equity-based compensation as important supplemental information useful
to their understanding of our historical results and estimating our future results.

We also believe that, in excluding the effects of equity-based
compensation, our non-GAAP financial measures provide investors with transparency into what management uses to measure and forecast
our results of operations, to compare on a consistent basis our results of operations for the current period to that of prior
periods and to compare our results of operations on a more consistent basis against that of other companies, in making financial
and operating decisions and to establish certain management compensation.

Equity-based compensation is an important part of total compensation,
especially from the perspective of employees. We believe, however, that supplementing GAAP income from continuing operations by
providing income from continuing operations, excluding the effect of equity-based compensation in all periods, is useful to investors
because it enables additional and period-to-period comparisons.

Adjusted EBITDA excludes non-cash and other charges including
impairment charges, restructuring, an unusual reserve for inventory, executive severance and recruiting fees, costs related to
an internal ERP systems integration upgrade, a network systems evaluation study and acquisition related costs. These are costs that we do not expect to recur on a regular basis, and consequently, we do not consider these charges
as a component of ongoing operations for purposes of management’s analysis of financial performance.

EBITDA and Adjusted EBITDA are not measures of liquidity calculated
in accordance with GAAP, and should be viewed as a supplement to – not a substitute for – results of operations presented
on the basis of GAAP. EBITDA and Adjusted EBITDA do not purport to represent cash flow provided by operating activities as defined
by GAAP. Furthermore, EBITDA and Adjusted EBITDA are not necessarily comparable to similarly-titled measures reported by other
companies.

33

The following table reconciles the specific items excluded
from GAAP in the calculation of EBITDA and Adjusted EBITDA for the periods indicated below (in thousands, except per share amounts):

Years Ended December
31,

2016

2015

2014

(Loss) income from continuing operations,
net of income taxes (GAAP)

$

(24,320

)

$

(19,157

)

$

2,236

Depreciation and amortization expense

7,958

8,217

6,812

Impairment of goodwill and other intangible assets

12,005

-

-

Interest expense and loss on extinguishment of debt,
net

1,858

672

(540

)

Income tax expense (benefit)

(340

)

9,902

419

EBITDA (non-GAAP)

(2,840

)

(366

)

8,927

Equity-based compensation expense

2,725

2,673

2,565

Non-cash and other items

2,425

7,014

1,129

Adjusted EBITDA (non-GAAP)

$

2,310

$

9,321

$

12,621

(Loss) income from continuing operations, net of income
taxes, per diluted share (GAAP)

$

(1.25

)

$

(1.00

)

$

0.12

Weighted average shares outstanding used in computing diluted per share
amounts

We use the net cash generated from our operations to fund new
product development, upgrades to our technology and to invest in new businesses. We believe that our sources of funds, principally
from operations and, to the extent necessary, from external financing arrangements, are sufficient to meet ongoing operations
and investing requirements.

The cash portion of the purchase consideration for the 2014
acquisition was funded, in part, through third party indebtedness. We expect our normal capital spending requirements will continue
to be financed primarily through internally generated funds.

Our cash and cash equivalents are held mostly in domestic accounts
and, accordingly, we do not have material exposure to foreign currency fluctuations.

Net cash provided by discontinued operations for the year ended
December 31, 2014 was $0.1 million. Cash flows associated with the revenue-producing and cost-generating activities of the discontinued
operations were eliminated following their disposal.

34

Operating Cash Flows

Net cash used by operating activities in 2016 decreased by
$9.4 million compared to net cash provided by operating activities in 2015, primarily due to lower earnings, offset by
the effect of non-cash expenses, such as goodwill and other asset impairments of $12.0 million, and a year over year
increase in accounts receivable, financing receivables and inventory.

Net cash provided by operating activities in 2015 decreased
by $1.6 million compared to 2014, primarily due to lower earnings offset by the effect of non-cash expenses and a year over year
reduction in accounts receivable.

Investing and Financing Cash Flows

In 2016, our cash flows used in investing activities was $3.3
million for the acquisition of property and equipment, capitalized internally developed software and the acquisition of software,
which was a decrease of $2.0 million compared to these captions in 2015. Our cash flows used in financing activities relate primarily
to our refinancing of our loan agreement. See Note M – Debt.

In 2015, our cash flows used in investing activities was $5.3
million for the acquisition of property and equipment, capitalized internally developed software and the acquisition of software,
which was a decrease of $0.1 million compared to these captions in 2014. Our cash flows used in financing activities related
primarily to principal payments on our loan with Silicon Valley Bank (SVB).

In 2014, we invested $41.4 million primarily comprised of
$37.3 million net cash used to acquire Omnilink through a merger transaction, $2.2 million to purchase property and
equipment, and $3.2 million to purchase other intangible assets, primarily development costs for software. The cash paid for
these investments was primarily funded from third party (SVB) bank loan indebtedness ($25.0 million). The balance of the cash
needed to complete the purchase price consideration was funded from the proceeds from the 2013 underwritten offering and by
cash generated by operations. These investment outflows were partially offset by proceeds from the sale on an investment
which generated $1.3 million. Our cash flows provided by financing activities relate primarily to proceeds from our loan
with SVB of $25.0 million, offset by $2.5 million of principal payments.

Liquidity and Capital Resources

We had working capital of $8.6 million as of December 31,
2016, compared to $17.6 million as of December 31, 2015. We had cash balances of $9.5 million and $16.2 million as of
December 31, 2016 and 2015. In 2014, we invested $37.3 million for a business merger transaction as well as investing $5.4
million in capital expenditures to further benefit the Company. The Company does not have any additional borrowing
capacity under its loan agreement with Crystal.

Liabilities of less than $0.1 million related
to Accounting Standards Codification Subtopic 740-10, Income Taxes have not been included
in the table above because we are uncertain as to if or when such amounts may be settled.
See Note K – Income Taxes in the accompanying consolidated financial statements.

Off-Balance Sheet Arrangements

As of December 31, 2016, we did not have any off-balance sheet
arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Critical Accounting Policies

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis,
management evaluates its estimates and judgments, including those related to revenue recognition, the allowance for uncollectible
accounts receivable, reserves for excess and obsolete inventories, capitalized internally developed software, goodwill and long-lived
assets and income taxes.

Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from those estimates.

We have identified the policies below as critical to our business
and the understanding of our results of operations. See Note A – Summary of Significant Accounting Policies in the accompanying
consolidated financial statements for a detailed discussion on the application of these and other accounting policies.

36

Revenue Recognition

Our revenue is generated from two primary sources, subscription
fees and the sale of IoT devices and hardware. Revenue is recognized when persuasive evidence of an agreement exists, the hardware
or service has been delivered, fees and prices are fixed and determinable, collection is reasonably assured and all other significant
obligations have been fulfilled. Revenue is recognized net of sales and any transactional taxes.

Subscription fees are based on the number of devices (subscriptions)
on our integrated IoT horizontal platform network. Subscription fees are typically invoiced and recognized as revenue as we provide
the services or process transactions in accordance with contractual performance standards. Customer contracts are generally recurring
or multi-year agreements. Subscription fee revenues for managed service arrangements include all of the key IoT components –
device, network, application and platform. Subscription fees also include volume-based excess message, network usage and other
activity that are recognized as revenue as incurred, consistent with contractual terms. We may, under an appropriate agreement,
bill subscription fees in advance for the network service to be provided. In these instances, we recognize the advance charge
(even if nonrefundable) as deferred revenue and recognize the revenue over future periods in accordance with the contract term
as the network service (time, data or minutes) is provided, delivered or performed. Subscription revenue may also include set-up
fees which are typically deferred and recognized ratably over the estimated life of the subscription. Direct and incremental
costs associated with deferred revenue are deferred, classified as deferred costs in prepaid expense and other assets in our consolidated
balance sheets and recognized in the period revenue is recognized. For managed services, cost of embedded devices and hardware
are capitalized as fixed assets and depreciated over the estimated life of the hardware. Unbilled revenue consists of earned but
unbilled revenue that results from non-calendar month billing cycles and the one-month lag time in billing related to certain
of our services.

We recognize revenue from the sale of IoT devices and hardware
at the time of shipment and passage of title. Provisions for rebates, promotions, product returns and discounts to customers are
recorded as a reduction in revenue in the same period that the revenue is recognized. We offer customers the right to return hardware
that does not function properly within thirty to ninety days after delivery. We continuously monitor and track such hardware
returns and record a provision for the estimated amount of such future returns based on historical experience and any notification
received of pending returns. While such returns have historically been within expectations and the provisions established, we
cannot guarantee that we will continue to experience the same return rates that we have experienced in the past. Any significant
increase in hardware failure rates and the resulting credit returns could have a material adverse impact on operating results
for the period or periods in which such returns materialize. Shipping and handling fees received from customers is recorded with
embedded device and hardware revenue and associated costs are recorded in cost of embedded hardware and devices.

On occasion we sell both hardware and monthly recurring services
to the same customer. In such cases, we evaluate such arrangements to determine whether a multiple-element arrangement exists.
For multiple-element revenue arrangements we allocate arrangement consideration at the inception of an arrangement to all deliverables
using the relative selling price method. The hierarchy for determining the selling price of a deliverable includes (a) vendor-specific
objective evidence, if available, (b) third-party evidence, if vendor-specific objective evidence is not available and (c) best
estimated selling price, if neither vendor-specific nor third-party evidence is available. In most cases, we utilize best estimated
selling price, as vendor specific objective evidence and third party evidence are not available. Certain judgments and estimates
are made and used to determine revenue recognized in any accounting period. If estimates are revised, material differences may
result in the amount and timing of revenues recognized for a given period.

Allowance for Uncollectible Accounts Receivable

We maintain an allowance for estimated losses resulting from
the inability of our customers to make required payments. The allowance for uncollectible accounts is based principally upon specifically
identified amounts where collection is deemed doubtful. Additional non-specific allowances are recorded based on historical experience
and our assessment of a variety of factors related to the general financial condition and business prospects of our customer base. Significant
management judgments and estimates must be made and used in connection with establishing the allowance for uncollectible accounts
receivable in any accounting period. Changes in economic conditions could significantly affect our collection efforts and results
of operations, particularly in the form of bad debts on the part of our customers.

37

Inventory and Reserves for Excess, Slow-Moving and Obsolete
Inventory

We value our inventory at the lower
of first-in, first-out (FIFO) cost or market. We continually evaluate the composition of our inventory and estimate potential
future excess, obsolete and slow-moving inventory. We specifically identify obsolete hardware for reserve purposes and analyze
historical usage, forecasted production based on demand forecasts, current economic trends, and historical write-offs when evaluating
the adequacy of the reserve for excess and slow-moving inventory. Significant management judgments and estimates must be made
and used in connection with establishing inventory reserves in any accounting period. The establishment of a reserve for
obsolete or slow moving inventory establishes a new cost basis in the inventory. If we are not able to achieve our expectations
of the net realizable value of the inventory at its current carrying value, we adjust our reserves accordingly.

Equity-Based Compensation

Compensation includes equity-based awards recorded and recognized
using fair value. Recognition of expense is net of an estimated forfeiture rate, recognizing compensation costs for only those
awards expected to vest over the requisite service period of the awards. Determining fair value requires estimates and involves
use of subjective assumptions; including assumptions on stock price volatility. Stock price volatility estimates are based primarily
on historical volatility over comparable periods.

Capitalized Software

We capitalize software both for internal
use and for inclusion in our products. For internal use software, costs incurred in the preliminary project stage of developing
or acquiring internal use software are expensed as incurred. After the preliminary project stage is completed, management has
approved the project and it is probable that the project will be completed and the software will be used for its intended purpose,
we capitalize certain internal and external costs incurred to acquire or create internal use software, principally related to
software coding, designing system interfaces and installation and testing of the software. We amortize capitalized internal use
software costs using the straight-line method over the estimated useful life of the software, generally for three years.

For software embedded in our products,
we capitalize software development costs when project technological feasibility is established and conclude capitalization when
the hardware is ready for release. We amortize capitalized costs for software to be sold using the straight-line method over the
estimated useful life based on anticipated revenue streams of the software, generally from three to seven years. Software development
costs incurred prior to the establishment of technological feasibility are expensed as incurred as engineering and development.

Judgment is required in determining which software projects
are capitalized and the resulting economic life.

Goodwill and Long-Lived Assets

We evaluate goodwill and long-lived assets for potential impairment
indicators whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that management
considers important which could result in an evaluation for impairment include but are not limited to the following:

significant
changes in the manner of or use of the acquired assets or the strategy for our overall
business;

·

significant
negative industry or economic trends;

·

significant
decline in our stock price for a sustained period;

·

a
decline in our market capitalization below net book value; and

·

changes
in our organization or management reporting structure that could result in additional
reporting units, which may require alternative methods of estimating fair values or greater
disaggregation or aggregation in our analysis by reporting unit.

Goodwill and trade names are not amortized, but are subject
to an annual impairment assessment performed at the reporting unit level. Goodwill and trade names must be assessed more frequently
if indicators of impairment are identified. An impairment charge will be recognized only when the implied fair value of a reporting
unit’s goodwill or the trade name(s) is less than its carrying amount. We assess goodwill (and trade names as applicable)
annually for our reporting units, all of which are components of our single reportable operating segment. We elected to change
our annual goodwill impairment testing measurement date from October 1 to December 1 effective October 1, 2016, primarily to better
align our measurement date with our financial projections, as well as our annual strategic, financial planning, and budgeting
processes. There was no impact of the change in measurement date.

38

In the second quarter of 2016, management evaluated and
determined that the Omnilink and Do-It-Yourself (DIY) product lines and reporting units should be tested for impairment as a
result of lower than expected operating results, which are related to strategic changes and delays associated with the
launch of a new personal tracking product line. Management initiated a quantitative two-step goodwill impairment test by
comparing the carrying value of the net assets of the respective reporting units to its fair value based on a
discounted cash flow analysis. Based on our Step 2 valuation assessment, we determined that the fair values of the
goodwill in these reporting units were less than the respective carrying values, and we
recorded $4.2 million in impairment charges as of June 30, 2016.

As part of our annual assessment of goodwill at
December 1, 2016, we found that the carrying values of our Omnilink and DIY reporting units were greater than the calculated
fair values. Accordingly, we performed a Step 2 analysis for these reporting units and recorded goodwill impairment of $7.4
million for our Omnilink reporting unit. No impairment was recorded for DIY goodwill as no impairment was indicated in the
Step 2 analysis. As part of our December 1, 2016 assessment we also recorded $0.4 million of impairment related to the
Omnilink Trade Name. The decrease in the fair value of the DIY reporting unit was principally due to the reporting unit not
generating results of operations consistent with our expectations and previous forecasts. The Omnilink impairment was due to
two contracts not being renewed during December 2016.

Our annual assessment of goodwill includes comparing the fair
value of each reporting unit to the carrying value, referred to as Step One. We estimate fair value principally using discounted
cash flow models and compare the aggregate fair value of the reporting units to the respective carrying values. If the fair value
of a reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is necessary. If the carrying
value of a reporting unit exceeds its fair value, we perform a second test, referred to as Step Two, to measure the amount of
impairment to goodwill, if any. To measure the amount of any impairment, we determine the implied fair value of goodwill in the
same manner as if we were acquiring the affected reporting unit in a business combination. Specifically, we allocate the fair
value of the affected reporting unit to all of the assets and liabilities of that unit, including any unrecognized intangible
assets, in a hypothetical calculation that would yield the implied fair value of goodwill. If the implied fair value of goodwill
is less than the goodwill recorded on our consolidated balance sheet, we record an impairment charge for the difference.

Our assumptions, inputs and judgments used in
performing the valuation analysis are inherently subjective and reflect estimates based on known facts and circumstances at
the time we perform the valuations. These estimates and assumptions primarily include, but are not limited to, projected
results of operations and cash flows, discount rates, terminal growth rates, and capital expenditures forecasts. The use of
different assumptions, inputs and judgments, or changes in circumstances, could materially affect the results of the
valuation. Due to the inherent uncertainty involved in making these estimates, actual results could differ from our estimates
and could result in additional non-cash impairment charges in the future. We considered the effect of a 1% decrease in growth
rate coupled with a 1% increase in the discount rate for each of our four reporting units. This hypothetical change would
cause the indicated fair value for the Omnilink reporting unit to decrease by $3.5 million. However, we
concluded that our estimated value is appropriate and consistent with our overall valuation and that goodwill and other
intangible assets are not further impaired. The hypothetical change did not affect the results for our other two reporting
units.

Other intangible assets, including
patents, acquired intellectual property and customer relationships, have finite lives and we record these assets at cost less
accumulated amortization. We calculate amortization expense on a straight-line basis over the estimated economic useful life of
the assets, which are 7 to 16 years for patents and acquired intellectual property and on
a staight line basis, which approximates the pattern
over which the economic benefits are being utilized, which is 4 to 11 years for customer relationships.
We assess other intangible assets and long-lived assets for impairment on a quarterly basis whenever any events have occurred
or circumstances have changed that would indicate impairment could exist. Any assessment for impairment is based on estimated
future cash flows directly associated with the asset or asset group.

39

Income Taxes

Estimates and judgments are required in the calculation of
certain tax liabilities and in the determination of the recoverability of certain deferred tax assets arising from net operating
losses, tax credit carryforwards and temporary differences between the tax and financial statement recognition of revenue and
expense. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period.

Deferred tax assets are required to be reduced by a valuation
allowance, if based on the weight of available evidence; it is more likely than not that some portion or all of the recorded deferred
tax assets will not be realized in future periods. In evaluating the ability to recover the deferred tax assets, in full or in
part, we consider all available positive and negative evidence including past operating results, the existence of cumulative losses
in the most recent years and the forecast of future taxable income on a jurisdiction by jurisdiction basis. In determining future
taxable income, we consider assumptions for the amount of state, federal and international pre-tax operating income, the reversal
of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant
judgment about the forecasts of future taxable income and are consistent with the plans and estimates we use to manage the underlying
businesses. Actual operating results and the underlying amount and category of income in future years could differ materially
from our current assumptions, judgments and estimates of recoverable net deferred tax assets.

In 2016, we continued to maintain our full valuation allowance
on our deferred tax assets, as we have determined that we would not meet the criteria of “more likely than not” that
our federal and state net operating losses and certain other deferred tax assets would be recoverable. This determination
was based on our cumulative loss over the past three years. During 2015, we determined that we would not meet the criteria of
“more likely than not” that the cumulative federal net operating losses and certain other deferred tax assets would
be recoverable. This determination was based on our assessment of both positive and negative evidence regarding realization of
our deferred tax assets; in particular, the strong negative evidence associated with our cumulative loss over the past
three years. Accordingly, we recorded a valuation allowance against these items. The deferred tax assets consist of federal net
operating losses, state net operating losses, tax credits, and other deferred tax assets, most of which expire between 2015 and
2035. As a result of recording the valuation allowance, we recognized deferred tax expense of $9.9 million for the year ended
December 31, 2015. Income tax expense recorded in the future will be reduced or increased to the extent of offsetting decreases
or increases to the valuation allowance.

In the normal course of business, we are subject to inquiries
and routine income tax audits from U.S. and non-U.S. tax authorities with respect to income taxes which may result in adjustments
to the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions. Further, during the
ordinary course of business, other facts and circumstances may impact our ability to utilize tax benefits and could also impact
estimated income taxes to be paid in future periods. We believe we have appropriately accrued for tax exposures. If we are required
to pay an amount less than or exceeding our tax provisions for uncertain tax matters, the financial impact will be reflected in
the period in which the matter is resolved or identified. In the event that actual results differ from these estimates, we may
need to adjust tax accounts which could materially impact our financial condition and results of operations.

Recent Accounting Pronouncements

For information with respect to new accounting pronouncements
and the impact of these pronouncements on our consolidated financial statements, see Note A – Summary of Significant Accounting
Policies in the accompanying consolidated financial statements.

Effect of Inflation

Inflation has not been a material factor affecting our business.
In recent years the cost of electronic components has remained relatively stable, due to competitive pressures within the industry,
which has enabled us to contain our hardware costs. Our general operating expenses, such as salaries, employee benefits, and facilities
costs are subject to normal inflationary pressures, but to date inflation has not had a material effect on our operating results.

Item 7A. Quantitative and Qualitative
Disclosures about Market Risk.

The market risk in our financial instruments represents the
potential loss arising from adverse changes in financial rates. We are exposed to market risk in the area of interest rates. These
exposures are directly related to our normal funding and investing activities.

We also hold cash balances in accounts with commercial banks
in the United States and foreign countries. These cash balances represent operating balances only and are invested in short-term
time deposits of the local bank. Such operating cash balances held at banks outside the United States are denominated in the local
currency. We held $0.3 million and $0.5 million in foreign bank accounts at December 31, 2016 and 2015, respectively.

40

Foreign Currency

The assets and liabilities of our foreign operations are translated
into U.S. dollars at current exchange rates, and revenues and expenses are translated at the ending exchange rate from the prior
period which materially approximates the average exchange rates for each period. Resulting translation adjustments are reflected
as other comprehensive loss in the consolidated statements of operations and comprehensive (loss) income and within shareholders’
equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other
than the functional currency are included in the results of operations as incurred. Except for transactions with customers and
vendors in Canada, substantially all other transactions are denominated in U.S. dollars. Foreign operations were not significant
to us for the fiscal year ended December 31, 2016.

Interest Rate Risk

We are exposed to changes in interest rates on our revolving
line of credit, long term debt and current portion of our long term debt that carry floating rate interest and which represented
98% of our debt as of December 31, 2016. The impact of a 100 basis point change in interest rates would result in a change in
annual interest expense of $0.2 million.

The accompanying
notes are an integral part of these financial statements.

46

NUMEREX CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
- CONTINUED

(In thousands)

Years Ended December
31,

2016

2015

2014

Supplemental disclosures of cash flow information:

Cash paid for interest

$

1,456

$

673

$

703

Cash paid for income taxes

31

58

146

Disclosure of non-cash investing and financing activities:

Capital expenditures in accounts payable

222

441

417

Non-cash interest

532

142

-

Non-monetary consideration for acquisition of assets

-

375

-

Common stock issued for acquisition of assets

-

243

-

Issuance of shares for services

8

-

-

The accompanying notes are an integral
part of these financial statements.

47

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Numerex Corp. (NASDAQ: NMRX) is a holding company incorporated
in Pennsylvania and, through its subsidiaries, is a single source, leading provider of managed enterprise solutions enabling the
Internet of Things (IoT). An IoT solution is generally viewed as a combination of devices, software and services that operate
with little or no human interaction. Our managed IoT solutions are simple, innovative, scalable and secure. Our solutions incorporate
each of the four key IoT building blocks – Device, Network, Application and Platform. We provide our technology and service
solutions through our integrated IoT horizontal platforms, which are generally sold on a subscription basis.

Basis of Presentation

The consolidated financial statements include the results of
operations and financial position of Numerex and its wholly owned subsidiaries in accordance with accounting principles generally
accepted in the United States of America (U.S. GAAP). Intercompany accounts and transactions have been eliminated in consolidation.

Discontinued Operations

Businesses to be divested are classified in the consolidated
financial statements as either discontinued operations or held for sale. For businesses classified as discontinued operations,
the balance sheet amounts and results of operations are reclassified from their historical presentation to assets and liabilities
of discontinued operations on the consolidated balance sheet and to discontinued operations on the consolidated statements
of operations and comprehensive (loss) income and cash flows, respectively, for all periods presented. The gains or losses associated
with these divested businesses are also recorded in discontinued operations in the consolidated statements of operations
and comprehensive (loss) income. Additionally, the accompanying notes do not include the operating results of businesses classified
as discontinued operations for all periods presented. As of June 30, 2014, we completed the divestiture of the businesses
classified as discontinued operations. We have not had and do not expect to have any significant continuing involvement with these
businesses following their divestiture. See Note C – Discontinued Operations for more information.

Estimates and Assumptions

The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expense and related disclosure
of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition,
warranty costs, doubtful accounts, goodwill and intangible assets, expenses, accruals, equity-based compensation, income taxes,
restructuring charges, leases, long-term service contracts, contingencies and litigation. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ materially from these estimates.

Fair Value of Financial Instruments

The fair value of financial instruments classified as current
assets or liabilities, including cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses approximate
carrying value, principally because of the short-term, maturity of those items. The fair value of our long-term financing receivables
and note payable approximates carrying value based on their effective interest rates compared to current market rates and similar
type borrowing arrangements.

We measure and report certain financial assets and liabilities
at fair value on a recurring basis, including cash equivalents. The major categories of nonfinancial assets and liabilities that
we measure at fair value include reporting units measured at fair value in our goodwill impairment test as well as certain indefinite
lived intangible assets. See Note D – Fair Value Measurements for more information.

48

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Concentration of Credit Risk

Financial instruments that potentially subject us to a concentration
of credit risk are primarily cash investments and accounts and financing receivables. We maintain our cash and overnight investment
balances in financial institutions, which typically exceed federally insured limits. We had cash balances in excess of these limits
of $9.3 million and $16.0 million at December 31, 2016 and 2015, respectively. We have not experienced any losses in such
accounts and believe we are not exposed to any significant credit risk on cash and cash equivalents. Concentration of credit risk
with respect to accounts and financing receivables from customers is limited. We perform credit evaluations of prospective customers
and we evaluate our trade and financing receivables periodically. Our accounts and financing receivables are at risk to the extent
that we may not be able to collect from some of our customers. See Note E – Accounts Receivable, Note F – Financing
Receivables and Note Q – Significant Customer, Concentration of Risk and Related Parties for more information.

Cash and Cash Equivalents

We consider all investments with an original maturity of three
months or less at date of purchase to be cash equivalents. Cash equivalents consist of overnight repurchase agreements and amounts
on deposit in foreign banks. We held $0.3 million and $0.5 million in foreign bank accounts at December 31, 2016 and 2015, respectively.

Restricted Cash

As of December 31, 2016, cash of $0.2
million was held in escrow related to certain vendor obligations as a result of entering into our loan agreement in March 2016.
See Note M – Debt. There was no restricted cash at December 31, 2015.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are stated at gross invoiced amounts
less discounts, other allowances and provision for uncollectible accounts. Trade accounts receivable include earned but unbilled
revenue that results from non-calendar month billing cycles and lag time in billing related to certain of our services. Credit
is extended to customers based on an evaluation of a customer’s financial condition and, generally, collateral is not required.
Accounts receivable are generally due within 30-90 days. We maintain an allowance for estimated losses resulting from the inability
of our customers to make required payments. The allowance for doubtful accounts is based principally upon specifically identified
amounts where collection is deemed doubtful. Additional non-specific allowances are recorded based on historical experience and
our assessment of a variety of factors related to the general financial condition and business prospects of our customer base.
We review the collectability of individual accounts and assess the adequacy of the allowance for doubtful accounts quarterly.
Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for
recovery is considered remote. See Note E – Accounts Receivable for more information.

Financing Receivables

Financing receivables are due in installments. We evaluate
the credit quality of our financing receivables on an ongoing basis utilizing an aging of the accounts and write-offs, customer
collection experience, the customer’s financial condition, known risk characteristics impacting the respective customer
base, and other available economic conditions, to determine the appropriate allowance. Similar to accounts receivable, we typically
do not require collateral. All amounts due at December 31, 2016 and 2015 were deemed fully collectible and an allowance was not
necessary. See Note F – Financing Receivables for more information.

49

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Inventories and Reserves for Excess, Slow-Moving and
Obsolete Inventory

Inventories are valued at the lower of cost or market and consist
principally of (1) security devices and (2) cellular IoT Modems and Modules and (3) satellite IoT Modems and other accessories.
Cost is determined on the first-in, first-out (FIFO) basis. Inbound freight costs, including raw material freight costs to contract
manufacturers is recorded in inventory and these costs are recognized in cost of sales when the product is sold. Lower of cost
or market value of inventory is determined at the product level and evaluated quarterly. Estimated reserves for obsolescence or
slow moving inventory are maintained based on current economic conditions, historical sales quantities and patterns and, in some
cases, the specific risk of loss on specifically identified inventories. Such inventories are recorded at estimated realizable
value net of the costs of disposal. The establishment of a reserve for obsolete or slow moving inventory establishes a
new cost basis in the inventory. See Note G – Inventory for more information.

Property and Equipment

Property and equipment are carried at cost, net of accumulated
depreciation and amortization. Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives. Property and equipment under capital leases are amortized over the lives of the respective
leases or over the service lives of the assets for those leases and leasehold improvements, whichever is shorter. Depreciation
and amortization for property and equipment is calculated using the straight-line method over the following estimated lives:

·

Machinery and equipment

4-10 years

·

Furniture, fixtures and fittings

3-10 years

·

Leasehold improvements

up to 10 years

See Note I – Property and Equipment for more information.

Capitalized Software

We capitalize software both for internal
use and for inclusion in our products. For internal use software, costs incurred in the preliminary project stage of developing
or acquiring internal use software are expensed as incurred. After the preliminary project stage is completed, management has
approved the project and it is probable that the project will be completed and the software will be used for its intended purpose,
we capitalize certain internal and external costs incurred to acquire or create internal use software, principally related to
software coding, designing system interfaces and installation and testing of the software. We amortize capitalized internal use
software costs using the straight-line method over the estimated useful life of the software, generally for three years.

For software embedded in our products,
we capitalize software development costs when technological feasibility is established and conclude capitalization when the hardware
product is ready for release. We amortize capitalized costs for software to be sold using the straight-line method over the estimated
useful life based on anticipated revenue streams of the software, generally for three years. Software development costs incurred
prior to the establishment of technological feasibility are expensed as incurred as engineering and development. See Note J –
Intangible Assets for more information.

Intangible Assets, Including Goodwill

Intangible assets consist of acquired customer relationships
and intellectual property, patents and trademarks, and goodwill. These assets, except for goodwill and trade names, are amortized
over their expected useful lives. Acquired customer relationships are amortized using the straight line method, which approximates
the pattern over which the economic benefits are being utilized, using lives of 4 to 11 years. Acquired intellectual property
and patents are amortized using the straight-line method over 7 to 16 years, representing the shorter of their estimated useful
lives or the period until the patent renews. Costs to maintain patents are expensed as incurred while costs to renew patents are
capitalized and amortized over the remaining estimated useful lives.

Goodwill and trade names are not amortized but are
subject to an annual impairment test, and more frequently if events or circumstances occur that would indicate a potential
decline in its fair value. An impairment charge will be recognized only when the implied fair value of a reporting
unit’s goodwill is less than its carrying amount. The annual assessment of goodwill for impairment includes comparing
the fair value of each reporting unit to the carrying value, referred to as Step One. If the fair value of a reporting unit
exceeds its carrying value, goodwill is not impaired and no further testing is necessary. If the carrying value of a
reporting unit exceeds its fair value, a second test is performed, referred to as Step Two, to measure the amount of
impairment to goodwill, if any. To measure the amount of any impairment, we determine the implied fair value of goodwill in
the same manner as if we were acquiring the affected reporting unit in a business combination. Specifically, we allocate the
fair value of the affected reporting unit to all of the assets and liabilities of that unit, including any unrecognized
intangible assets, in a hypothetical calculation that would yield the implied fair value of goodwill. If the implied fair
value of goodwill is less than the goodwill recorded on the consolidated balance sheet, an impairment charge for the
difference is recorded. We assess goodwill (and trade names as applicable) annually for our four reporting units, all of
which are components of our single reportable operating segment. We elected to change our annual goodwill impairment testing
measurement date from October 1 to December 1 effective October 1, 2016, primarily to better align our measurement date with
our financial projections, as well as our annual strategic, financial planning, and budgeting processes. There was no
impact of the change in measurement date.

50

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

We base the impairment analysis of intangible assets, including
goodwill on estimated fair values. The fair value of reporting units for assessing goodwill is principally based on discounted
cash flow models and using a relief from royalty method for other intangible assets. The assumptions, inputs and judgments used
in estimating fair values are inherently subjective and reflect estimates based on known facts and circumstances at the time the
valuations are performed. These estimates and assumptions primarily include, but are not limited to, discount rates, terminal
growth rates, projected revenues and costs, projected cash flows, capital expenditure forecasts, and royalty rates.

In 2016, we recorded impairment charges of $2.1 million and
$9.7 million for tradenames and goodwill related to our Omnilink product line, respectively. Additionally we recorded impairment
charges of $0.2 million and $0.1 million for goodwill and technology for our DIY product line. See Note J – Intangible Assets
for more information.

Impairment of Long-lived Assets

Long-lived assets, such as property and equipment and other
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds
its estimated future cash flows, an impairment charge is recognized by the amount which the carrying amount of the asset exceeds
the fair value of the asset. No impairment charges were recorded during the year ended December 31, 2016. During the year ended
December 31, 2015, we recorded an impairment charge of $1.3 million for prepaid carrier fees in other assets affecting multiple
reporting units. See Note H – Prepaid Expenses and Other Assets for more information.

Income Taxes

We account for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using the enacted tax rates applied to taxable income. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance
is provided for deferred tax assets when it is more likely than not that the asset will not be realized.

We conduct business globally and file income tax returns in
the United States and in many state and certain foreign jurisdictions. We are subject to state and local income tax examinations
for years after and including 1998. These tax years remain open due to the net operating losses generated in these years that
have not been utilized as of the year ended December 31, 2016. Likewise, the existence of net operating losses from earlier periods
could subject us to United States federal income tax examination for years including and after 2001, since such net operating
losses have not been utilized as of the year ended December 31, 2016. See Note K – Income Taxes for more information.

Treasury Stock

We account for treasury stock under the cost method. When treasury
stock is re-issued at a higher price than its cost, the difference is recorded as a component of additional paid-in capital to
the extent that there are gains to offset the losses. If there are no treasury stock gains in additional paid-in capital, the
losses are recorded as a component of accumulated deficit.

51

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Other Comprehensive (Loss) Income and Foreign Currency
Translation

Other comprehensive (loss) income consists of adjustments,
net of tax, related to unrealized gains (losses) on foreign currency translation. These are reported in accumulated other comprehensive
(loss) income as a separate component of shareholders’ equity until realized in earnings. The assets and liabilities of
our foreign operations are translated into U.S. dollars at the period end spot exchange rates, and revenues and expenses are translated
at estimated average exchange rates for each period. Resulting translation adjustments are reflected as other comprehensive loss
in the consolidated statements of operations and comprehensive (loss) income and within shareholders’ equity. Transaction
gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional
currency are included in the results of operations as incurred. Foreign operations are not significant to us for the years ended
December 31, 2016, 2015 or 2014.

Revenue Recognition

Our revenue is generated from two primary sources, subscription
fees and the sale of IoT devices and hardware. Revenue is recognized when persuasive evidence of an agreement exists, the hardware
or service has been delivered, fees and prices are fixed and determinable, collection is reasonably assured and all other significant
obligations have been fulfilled. Revenue is recognized net of sales tax and any other transactional taxes.

Subscription fees are based on the number of devices (subscriptions)
on our integrated IoT horizontal platform network. Subscription fees are typically invoiced and recognized as revenue as we provide
the services or process transactions in accordance with contractual performance standards. Customer contracts are generally recurring
or multi-year agreements. Subscription fee revenues for managed service arrangements include all of the key IoT components –
device, network, application and platform. Subscription fees also include volume-based excess network usage, messages and other
activity that are recognized in revenue as incurred, consistent with contractual terms. We may, under an appropriate agreement,
bill subscription fees in advance for the network service to be provided. In these instances, we recognize the advance charge
(even if nonrefundable) as deferred revenue and recognize the revenue over future periods in accordance with the contract term
as the network service (time, data or minutes) is provided, delivered or performed. Subscription revenue may also include activation
fees which are deferred and recognized ratably over the estimated life of the subscription to which the activation fee relates. Direct
and incremental costs associated with deferred revenue are also deferred, classified as deferred costs in prepaid expense and
other assets in our consolidated balance sheets, and recognized in the period revenue is recognized under managed service arrangements.
For managed services, cost of embedded devices and hardware are capitalized as fixed assets and depreciated over the estimated
life of the hardware. Unbilled revenue consists of earned revenue that results from non-calendar month billing cycles and the
one-month lag time in billing related to certain of our services.

We recognize revenue from the sale of IoT devices and hardware
at the time of shipment and passage of title. Provisions for rebates, promotions, product returns and discounts to customers are
recorded as a reduction in revenue in the same period that the revenue is recognized. We offer customers the right to return hardware
that does not function properly within thirty to ninety days after delivery. We continuously monitor and
track such hardware returns and record a provision for the estimated amount of such future returns based on historical experience
and any notification received of pending returns. While such returns have historically been within expectations and the provisions
established, we cannot guarantee that we will continue to experience the same return rates that we have experienced in the past.
Any significant increase in hardware failure rates and the resulting credit returns could have a material adverse impact on operating
results for the period or periods in which such returns materialize. Shipping and handling fees received from customers are recorded
with embedded device and hardware revenue and associated costs are recorded in cost of embedded devices and hardware.

On occasion we sell both hardware and monthly recurring services
to the same customer. In such cases, we evaluate such arrangements to determine whether a multiple-element arrangement exists.
For multiple-element revenue arrangements, we allocate arrangement consideration at the inception of an arrangement to all elements
using the relative selling price method. The hierarchy for determining the selling price of a deliverable includes (a) vendor-specific
objective evidence, if available, (b) third-party evidence, if vendor-specific objective evidence is not available and (c) our
best estimate of the selling price, if neither vendor-specific nor third-party evidence is available. In most cases, neither vendor-specific
objective evidence nor third-party evidence is available, and we use the best estimate of the selling price, which is based on
consistent selling price. Certain judgments and estimates are made and used to determine revenue recognized in any accounting
period. If estimates are revised, material differences may result in the amount and timing of revenues recognized for a given
period.

52

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Advertising Expenses

Advertising expenses are charged to operations in the period
in which they are incurred. For the years ended December 31, 2016, 2015 and 2014, advertising costs were approximately $1.1 million,
$1.0 million and $0.9 million, respectively.

Equity-Based Compensation

Compensation cost is recognized for all equity-based payments
granted and is based on the grant-date fair value estimated using the Black-Scholes option pricing model. Our determination of
fair value of equity-based payment awards on the date of grant using the option-pricing model is affected by our share price and
our valuation assumptions. Certain grants to executives require achievement of market conditions before the grant may be exercised.
The fair value of awards with market exercise conditions is estimated on the date of grant using a lattice model with a Monte
Carlo simulation. These primary variables include our expected share price volatility over the estimated life of the awards and
actual and projected exercise behaviors.

As employees vest in their awards, compensation cost is recognized
over the requisite service period with an offsetting credit to additional paid-in capital. Equity-based compensation expense is
based on awards ultimately expected to vest and has been reduced for estimated forfeitures. Forfeitures are estimated at the time
of grant and revised, if necessary, in subsequent periods if actual forfeitures are expected to differ from those estimates. See
Note O – Equity-Based Compensation for more information.

Engineering and Development

Engineering and development expenses that are not capitalizable
as internally developed software are charged to operations in the period in which they are incurred. Engineering and development
costs consist primarily of salaries and other personnel-related costs, bonuses, and third-party services. For the years ended
December 31, 2016, 2015 and 2014, engineering and development costs recorded in operations were $9.2 million, $9.0 million and
$8.0 million, respectively.

Earnings Per Share

Basic earnings per share is computed by dividing net (loss)
income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted
earnings per share is computed by giving effect to all potentially dilutive common shares outstanding during the period. Potentially
dilutive common shares consist of outstanding stock options and restricted stock units, calculated using the treasury stock method.
See Note S – Earnings Per Share for more information.

Liquidity

As indicated in the accompanying consolidated financial statements,
the Company incurred operating losses totaling $22.8 million and $8.6 million and cash used in operations totaling $0.5 million
and cash provided by operations of $8.9 million for the years ended December 31, 2016 and 2015, respectively. As of December 31,
2016, the Company has an accumulated deficit of $48.3 million, and cash and cash equivalents of $9.5 million. The Company’s
cash flow requirements during 2016 were financed by cash on hand and cash generated by operations. The Company had total long
term debt, including current portion, of $16.2 million as of December 31, 2016. The Company’s ability to continue
in business is dependent on its ability to continue to generate operating cash flows, to maintain sufficient cash on hand, to
raise additional capital, and an ability to control expenditures. Management believes that the Company will maintain sufficient
liquidity through at least March 2018. The consolidated financial statements do not include any adjustments that might result
from this uncertainty.

Reclassifications

As a result of the adoption of a recent
accounting pronouncement, see Recently Adopted Accounting Guidance below, the balance sheet as of December 31, 2015 reflects the
following reclassifications (dollars in thousands):

53

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Historical

Reclassi-

Presentation

fication

As Adjusted

Prepaid expenses and other current assets

$

2,037

$

(150

)

$

1,887

Other assets

699

(290

)

409

Current portion of long-term debt

3,750

(150

)

3,600

Long-term debt, less current portion

15,599

(290

)

15,309

Recently Adopted Accounting Guidance

In March 2015, the Financial Accounting Standards Board (FASB)
issued guidance about simplifying the presentation of deferred financing costs. The guidance was intended to help clarify deferred
financing costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying
amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for deferred financing
costs were not affected. The guidance was effective January 1, 2016 and, in accordance with the guidance, $0.8 million of
deferred financing costs is netted against long-term debt as of December 31, 2016 and $0.4 million of deferred financing costs
was reclassified from current and noncurrent other assets to the current and noncurrent portions of long-term debt as of December
31, 2015.

In September 2015, the FASB issued guidance to simplify the
accounting for measurement-period adjustments for an acquirer in a business combination. The update requires an acquirer to recognize
any adjustments to provisional amounts of the initial accounting for a business combination with a corresponding adjustment to
goodwill in the reporting period in which the adjustments are determined in the measurement period, as opposed to revising prior
periods presented in financial statements. Thus, an acquirer shall adjust its financial statements as needed, including recognizing
in its current-period earnings the full effect of changes in depreciation, amortization, or other income effects, by line item,
if any, as a result of the change to the provisional amounts calculated as if the accounting had been completed at the acquisition
date. This update was effective January 1, 2016 and the adoption of this guidance did not have a material impact on our financial
statements.

In March 2016, the FASB issued guidance to improve the accounting
for employee share-based payments. Under the new guidance, companies will no longer record excess tax benefits and certain tax
deficiencies in additional paid-in capital. Instead, all excess tax benefits and tax deficiencies should be recognized as income
tax expense or benefit in the income statement, and additional paid-in capital pools will be eliminated. The guidance requires
companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity.
It also makes several changes to the accounting for forfeitures and employee tax withholding on share-based compensation. This
guidance is effective for annual periods beginning after December 16, 2016, and interim periods within those annual periods, but
may be adopted earlier. The Company adopted this guidance in the fourth quarter of fiscal 2016 for the annual period ended December
31, 2016. The impact of the adoption of this standard was to reduce our deferred tax assets as well as the offsetting valuation
allowance by $3.4 million. See Footnote K - Income Taxes. Periods prior to January 1, 2016 have not been adjusted.

In August 2014, the FASB issued guidance about disclosing an
entity’s ability to continue as a going concern. The guidance is intended to define management’s responsibility to
evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related
footnote disclosures. This update was effective December 15, 2016 and the adoption of this guidance did not have a material impact
on our financial statements.

54

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In November 2015, the FASB issued guidance requiring all deferred
tax assets and liabilities to be classified as non-current on the balance sheet instead of separating deferred taxes into current
and non-current amounts. In addition, valuation allowance allocations between current and non-current deferred tax assets are
no longer required because those allowances also will be classified as non-current. The Company adopted this guidance in the fourth
quarter of fiscal 2016 for the annual period ended December 31, 2016. Periods prior to January 1, 2016 have not been adjusted,
as we are adopting prospectively.

In July 2015, the FASB issued guidance intended to
simplify the presentation of applicable inventory at the lower of cost or net realizable value. The new guidance clarifies
that net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable
costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or
the retail inventory method. This update was effective December 15, 2016 and the adoption of this guidance did not have a
material impact on our financial statements.

In June 2014, the FASB issued guidance that applies to all
reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance
target that affects vesting could be achieved after the requisite service period. It requires that a performance target that affects
vesting, and that could be achieved after the requisite service period, be treated as a performance condition and follows existing
accounting guidance for the treatment of performance conditions. This update was effective January 1, 2016 and the adoption of
this guidance did not have a material impact on our financial statements.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board
(FASB) issued guidance that requires lessees to recognize most leases as assets and liabilities on the balance
sheet. Qualitative and quantitative disclosures will be enhanced to better understand the amount, timing and uncertainty of cash
flows arising from leases. The guidance is effective for annual and interim periods beginning after December 15, 2018. The updated
standard mandates a modified retrospective transition method with early adoption permitted. We are currently evaluating
the effect that the updated standard will have on our financial statements.

In May 2014, the FASB issued guidance which amends the existing
accounting standards for revenue recognition. In August 2015, the FASB issued additional guidance which delays the effective
date by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In
March 2016, the FASB issued guidance which clarifies the implementation guidance on principal versus agent considerations. The
guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred
to the customers. The new revenue recognition standard will be effective for us in the first quarter of 2018, with the option
to adopt it in the first quarter of 2017. We currently anticipate adopting the new standard effective January 1, 2018. The new
standard also permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method),
or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application
(the modified retrospective method). We currently anticipate adopting the standard using the modified retrospective method. We
are concluding the assessment phase of implementing this guidance. We have evaluated each of the five steps in the new revenue
recognition model, which are as follows: 1) Identify the contract with the customer; 2) Identify the performance obligations in
the contract; 3) Determine the transaction price; 4) Allocate the transaction price to the performance obligations; and 5) Recognize
revenue when (or as) performance obligations are satisfied. Our preliminary conclusion is that the determination of what constitutes
a contract with our customers (step 1), our performance obligations under the contract (step 2), and the determination and allocation
of the transaction price (steps 3 and 4) and recognizing revenue when performance obligations are satisfied (step 5) under
the new revenue recognition model will not result in material changes in comparison to our current revenue recognition for our
contracts with customers entered into in the normal course of operations. However, we have not yet finalized our analysis.

NOTE B – BUSINESS COMBINATIONS

2014 Merger

On May 5, 2014, in accordance with
the terms and conditions of the merger agreement, we merged a wholly-owned subsidiary of Numerex with and into Omnilink Systems
Inc. (Omnilink) with Omnilink surviving the merger as a wholly-owned subsidiary of the Company. The purchase price was $37.5 million
cash.

55

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Omnilink provides tracking and monitoring
services for people and valuable assets via Omnilink’s IoT platform that connects hardware, networks, software, and support
services. The assets, liabilities and operating results of Omnilink are reflected in our consolidated
financial statements commencing from the merger date. Transaction costs of $1.0 million for the year ended December 31, 2014 have
been recorded in general and administrative expense in the accompanying consolidated statement of operations and comprehensive
(loss) income.

The following table summarizes the fair values of the assets
acquired and liabilities assumed as of the closing date of the Omnilink merger (dollars in thousands):

Fair

Estimated

Value

Useful Lives

Cash

$

195

n/a

Accounts receivable

2,677

n/a

Inventory

873

n/a

Prepaid and other assets

377

n/a

Property and equipment

1,613

4 (a)

Deferred tax asset

2,600

n/a

Customer relationships

6,056

11

Technology

4,998

14

Trade names

3,632

Indefinite

Goodwill

17,318

Indefinite

Total identifiable assets acquired

40,339

Accounts payable

(1,756

)

n/a

Accrued expenses

(1,037

)

n/a

Deferred revenue

(64

)

n/a

Total liabilities assumed

(2,857

)

Net assets acquired

$

37,482

(a)

The weighted average remaining useful life for all
property and equipment is approximately four years.

The total purchase consideration for the merger was allocated
to identifiable assets purchased and liabilities assumed based on fair value. The estimated fair value attributed to intangible
assets, other than goodwill, was based on common valuation techniques. The fair value of acquired software was estimated using
a cost approach based on assumptions of our historical software development costs. The fair value of trade names was based on
an income approach with key assumptions including estimated royalty rates to license the trade names from a third party. The valuation
of customer relationships utilized an income approach and discounted cash flows taking into consideration the number of customer
relationships acquired and estimated customer turnover.

The value of the deferred tax asset and goodwill as disclosed
above reflect a subsequent measurement period adjustment of $0.2 million recorded during the three months ended June 30, 2015
to record the final calculation of acquired deferred tax assets. The residual allocation to goodwill results from such factors
as an assembled workforce, expected significant synergies for market growth and profitability as well as Omnilink’s service
and product lines contributing to our becoming the market leader in select IoT vertical markets. The total amount of goodwill
will not be deductible for income tax purposes.

56

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Unaudited Pro forma Results

The consolidated statement of operations and comprehensive
(loss) income for the year ended December 31, 2014 includes approximately $8.7 million of revenues contributed by Omnilink products
and services for the period from May 5, 2014 through December 31, 2014. Immediately upon closing the merger, we began integrating
Omnilink’s operations with our existing operations. As a result, the legacy and acquired businesses are now sharing various
selling, general and administrative functions. Any measure of stand-alone profitability for Omnilink in the post-acquisition period
is not material and cannot be calculated accurately due to the shared cost structure of the acquired and legacy businesses.

The following table presents the unaudited pro forma consolidated
net revenues, income (loss) from continuing operations before income taxes and net income (loss) for the year ended December 31,
2014, based on the historical statements of operations of Numerex and of Omnilink, giving effect to the Omnilink merger and related
financing as if they had occurred on January 1, 2014. The unaudited pro forma financial information is not necessarily indicative
of what the consolidated results of operations actually would have been had the acquisition occurred at the beginning of 2014. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations
of the combined company (in thousands, except per share data).

Adjust depreciation
expense for a 2014 net historical Omnilink reduction of $0.1 million for the effect of
recording property and equipment at estimated fair value.

·

Adjust amortization
expense for a 2014 net increase of $0.3 million for the effect of recording intangible
assets at estimated fair value.

·

Adjust interest
expense for a 2014 net increase of $0.1 million due to the repayment of Omnilink’s
debt balances in conjunction with the merger and the merger-related debt incurred by
Numerex and related amortization of deferred financing costs.

·

Adjust expense
by $1.0 million to reclassify expense recorded for merger-related costs in the year ended
December 31, 2014.

The unaudited pro forma results do not include any revenue
or cost reductions that may be achieved through the business combination, or the impact of non-recurring items directly related
to the business combination.

NOTE C – DISCONTINUED OPERATIONS

In June 2014, we completed the sale and disposition of components
of our business classified as discontinued operations. These components were classified as discontinued operations in June 2013,
when we decided to exit certain businesses and related products that were not core to future business plans. These non-core businesses
include BNI Solutions, Inc. (BNI), Digilog, Inc. and DCX Systems, Inc. These businesses were previously reported in our consolidated
financial statements as a separate segment, “Other Services”. The related products and services include video conferencing
hardware and installation of telecommunications equipment, all of which were unrelated to our core IoT communication products
and services.

57

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

All assets and liabilities of discontinued operations were
disposed of during the quarter ended June 30, 2014 as a result of the completed sale of all the capital stock of BNI. All revenue
and expense of the discontinued operations were reclassified and presented in the accompanying consolidated statements of operations
and comprehensive (loss) income as loss from discontinued operations, net of income taxes, after (loss) income from continuing
operations, net of income tax benefit and before net (loss) income. Similarly, all cash flows of the discontinued operations were
reclassified and presented in the accompanying consolidated statements of cash flows as net cash provided by discontinued operations.

On June 30, 2014, we completed the sale of all of the capital
stock of BNI and the disposition of the remaining discontinued operations. The following table presents the financial results
of the discontinued operations (in thousands):

Year Ended
December 31,

2014

Revenues from discontinued
operations

$

207

Loss from discontinued operations before income taxes

$

(285

)

Income tax benefit

(127

)

Loss from discontinued operations, net of income taxes

(158

)

Loss on disposal of subsidiary included in discontinued
operations

(309

)

Loss on dissolution of subsidiaries
included in discontinued operations

(25

)

Net loss from discontinued operations

$

(492

)

There are no assets or liabilities reported as discontinued
operations as of December 31, 2016 and 2015, due to our disposal of all discontinued operations.

NOTE D – FAIR VALUE MEASUREMENTS

We account for certain assets at fair value. The hierarchy
below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the
market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is
significant to the fair value measurement in its entirety. These levels are:

Level 1—Valuations based on quoted
prices for identical assets and liabilities in active markets.

Level 2—Valuations based on observable
inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable
or can be corroborated by observable market data.

Level 3—Valuations based on unobservable
inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These
valuations require significant judgment.

Assets measured at fair value on a recurring basis comprise
only investments in short-term US Treasury Funds of $0 and $15.5 million as of December 31, 2016 and 2015, respectively. The investments
were classified as available for sale debt securities included in cash and cash equivalents in the consolidated balance sheets
and are categorized as Level 1 measurements in the fair value hierarchy. We do not have any liabilities measured at fair value
on a recurring basis.

58

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table summarizes assets measured at fair value
on a nonrecurring basis during the year ended December 31, 2016 and 2015 (in thousands):

2016

Fair

Total

Value

Level 3

Losses

June 30, 2016

DIY Reporting Unit

Technology

$

164

$

164

$

81

Goodwilll

1,441

1,441

215

December 1, 2016

Omnilink Reporting Unit

Indefinite lived trade names

918

918

2,054

Goodwill

7,925

7,925

9,655

Total nonrecurring
fair value measurements

$

10,448

$

10,448

$

12,005

2015

Fair

Total

Value

Level 3

Losses

September 30, 2015

DIY Reporting Unit

Amortizing Intangible Assets

$

825

$

825

$

446

Goodwilll

1,656

1,656

924

October 1, 2015

Omnilink Reporting Unit

Amortizing intangible assets

4,900

4,900

660

Indefinite lived trade names

2,972

2,972

682

Total nonrecurring
fair value measurements

$

10,353

$

10,353

$

2,712

See Note J – Intangible Assets for more information.

NOTE E – ACCOUNTS RECEIVABLE

Accounts receivable and related allowance for doubtful accounts
consisted of the following (in thousands):

As of December 31,

2016

2015

Accounts receivable

$

9,748

$

9,218

Unbilled accounts receivable

455

637

Allowance for doubtful accounts

(767

)

(618

)

$

9,436

$

9,237

59

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE F – FINANCING RECEIVABLES

We lease certain hardware devices to a small number of hardware
distributors under sales-type leases expiring in various years through 2021. These receivables typically have terms ranging from
two to four years and bear interest at 2%. Because the devices are not functional on our network without an active service agreement
with us, we can de-activate devices for non-payment, and have therefore established a history of successfully collecting amounts
due under the original payment terms without making concessions to customers. In addition, our long-standing relationships with
these high credit quality customers support our assertion that revenues are fixed and determinable and probable of collection.

The components of financing receivables were as follows (in
thousands):

As of December 31,

2016

2015

Total minimum lease payments receivable

$

4,005

$

4,266

Unearned income

(133

)

(156

)

Present value of future minimum lease payments receivable

3,872

4,110

Current Portion

1,778

1,780

Amounts due after one year

$

2,227

$

2,330

Future minimum lease payments to be received subsequent to
December 31, 2016 are as follows (in thousands):

2017

$

1,854

2018

1,192

2019

665

2020

289

2021

5

$

4,005

Our financing receivables are comprised of a single portfolio
segment because of the small number of customers and the similar nature of the sales-type leasing arrangements. We evaluate the
credit quality of financing receivables based on a combination of factors, including, but not limited to, customer collection
experience, economic conditions, the customer’s financial condition and known risk characteristics impacting the respective
end users of our customers.

We utilize historical collection experience from our population
of similar customers to establish any allowance for credit losses. Financing receivables are placed in non-accrual status after
60 days of nonpayment and written off only after we have exhausted all collection efforts. We have been successful collecting
financing receivables and consider the credit quality of such arrangements to be good. We have not experienced any material credit
losses for any period in the three years ended December 31, 2016. Customer payments are considered past due if a scheduled payment
is not received within contractually agreed upon terms. As of December 31, 2016, there were no financing receivables past due
more than 30 days.

NOTE G – INVENTORY

Inventory consisted of the following (in thousands):

As of December 31,

2016

2015

Raw materials

$

2,953

$

1,903

Finished goods

8,504

8,420

Inventory reserves

(2,446

)

(2,706

)

$

9,011

$

7,617

60

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE H – PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other current assets consisted of the
following (in thousands):

As of December 31,

2016

2015

Prepaid expenses

$

749

$

752

Deferred costs

526

718

Other

146

417

$

1,421

$

1,887

Other noncurrent assets consisted of the following (in thousands):

As of December 31,

2016

2015

Deferred activation fees

$

360

$

293

Deposits

114

116

$

474

$

409

During 2011, we purchased and installed telecommunication infrastructure
equipment and related equipment to improve the capacity and functionality of our devices operating on one of our carrier networks.
To comply with the needs of one of our carriers and in exchange for more favorable carrier fees, we transferred the legal right
to the equipment to the vendor. Thus, our existing agreement with this vendor was amended to provide for the new carrier fees
and the legal transfer of the equipment. We accounted for this transaction as a non-monetary exchange. The $2.2 million cost of
the equipment was determined to be its fair value and we recorded this transaction by transferring the equipment cost to prepaid
carrier fees. During 2014, we made a prepayment of $0.4 million to the same carrier to license additional network access, which
is recorded within prepaid expenses . Both prepaid expenses were being amortized in cost of sales for subscription and support
revenue on a straight-line basis over the term of the agreement, which was to expire in 2021.

In September 2015, we entered into a mutual agreement with
the vendor to (1) cancel the existing agreement, (2) purchase certain equipment from the vendor and (3) assume certain national
carrier and other agreements from the vendor. Total consideration was $1.2 million and included (1) $0.5 million in cash, (2)
30,000 shares of our common stock having a value of $0.3 million and (3) the prepayment above to license additional network access
having a carrying value of $0.4 million. Consummation of the transaction, which was contingent upon obtaining consents from certain
of our vendor’s carriers, closed in October 2015. During negotiations with the vendor in the third quarter for the fiscal
year 2015, a triggering event was identified for purposes of assessing long-lived assets for impairment, as it was more likely
than not that the aforementioned assets would be disposed of significantly before the end of their previously estimated useful
life. As a result of this transaction and in conjunction with a separate agreement with a mutual national carrier, we determined
that the prepaid carrier fees had no continuing value. We recorded a charge of $1.3 million in cost of sales to write-off the
carrying value of the prepaid carrier fees as a settlement of a pre-existing relationship with the vendor. The impairment charge
affected multiple reporting units.

61

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE I – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following (in thousands):

As of December 31,

2016

2015

Computer, network and other equipment

$

8,805

$

7,150

Monitoring equipment

5,692

3,015

Furniture and fixtures

486

888

Leasehold improvements

264

374

Total property and equipment

15,247

11,427

Accumulated depreciation and amortization

(9,225

)

(6,632

)

$

6,022

$

4,795

During the year ended December 31, 2016, we transferred $2.7
million of inventory to monitoring equipment within property and equipment. Monitoring equipment includes devices and hardware
owned by us and used by customers under managed service arrangements. Depreciation expense for monitoring equipment included in
cost of sales for subscription and support revenues in the accompanying consolidated statements of operations and comprehensive
(loss) income was $1.4 million, $0.8 million and less than $0.3 million for the years ended December 31, 2016, 2015 and 2014,
respectively.

Depreciation and amortization expense for property and equipment,
including assets totalling $1.2 million recorded as capital leases, was $1.5 million, $2.0 million, and $1.6 million for
the years ended December 31, 2016, 2015, and 2014 respectively.

NOTE J – INTANGIBLE ASSETS

Impairment Charges

During the second quarter of 2016, management evaluated and
determined that the Omnilink and Do-It-Yourself (DIY) product lines and reporting units should be tested for impairment as a result
of lower than expected operating results, which were related to strategic changes and delays associated with the launch
of a new personal tracking product line. Management initiated a quantitative two-step goodwill impairment test by comparing the
carrying value of the net assets of the respective units to their fair values based on a discounted cash flow analysis. Based
on our assessment under the two-step impairment test, we determined that the fair values of these reporting units were less than
the respective carrying values; therefore we performed Step 2 of the impairment test, which indicated that goodwill was
impaired, and we recorded $4.2 million in impairment charges.

We elected to change our annual goodwill impairment testing
measurement date from October 1 to December 1 effective October 1, 2016, primarily to better align our measurement date with our
financial projections, as well as our annual strategic, financial planning, and budgeting processes. There was no impact on
our analysis from the change in measurement date.

As part of our annual assessment of goodwill at December 1,
2016, the carrying values of our Omnilink and DIY reporting units were found to be greater than the calculated fair values.
Significant assumptions used in our assessment included the discount rates, growth rate assumptions, long term growth rates assumptions,
and EBITDA margins. Accordingly, we performed a Step 2 analysis for these reporting units and recorded goodwill impairment of
$7.4 million for our Omnilink reporting unit. No impairment was recorded for DIY goodwill as no impairment was indicated in the
Step 2 analysis. As part of our December 1, 2016 assessment we also recorded $0.4 million of impairment related to the Omnilink
Trade Name. The decrease in the fair value of the DIY reporting unit was principally due to the reporting unit not generating
results of operations consistent with our expectations and previous forecasts. The decrease in the fair value of the Omnilink
reporting unit was due to two customer contracts which were not renewed during December 2016.

We recorded a total of $2.7 million in impairment charges for
goodwill and other intangible assets during the year ended December 31, 2015.

62

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

During 2015, our Do-It-Yourself (DIY) product line and reporting
unit did not generate results of operations consistent with our expectations and previous forecasts and management was
evaluating different strategic options for the reporting unit. These factors were triggering events that it was more likely than
not that the fair value of the DIY reporting unit was less than its carrying amount. As a result, we performed our initial assessment
of goodwill for impairment, along with other intangible assets of the DIY reporting unit, in the period ended September 30, 2015.
Based on preliminary Step 2 calculations, we recorded impairment charges of $0.9 million for goodwill and $0.3 million for patents
during the period ended September 30, 2015. We recorded an additional $0.1 million impairment charge for customer relationship
intangible assets upon finalizing the Step 2 calculation during the three months ended December 31, 2015.

As part of our annual assessment of goodwill and other intangible
assets for impairment as of October 1, 2015, we determined that technology and indefinite-lived trade names acquired in the merger
with Omnilink were each impaired by $0.7 million. The decrease in the fair value of both trade names and technology was principally
due to a change in the projected revenues and financial returns on intangible assets from the amounts originally projected at
the date of the merger.

Changes in values are summarized as follows (in thousands):

DIY

Omnilink

Total Impairment

Goodwill

Technology

Patents

Customer Relationships

Goodwill

Trade Names

Technologies

January 1, 2015

$

2,580

$

245

$

748

$

1,241

$

17,580

$

3,632

$

4,753

Impairment

$

(2,712

)

(924

)

-

(325

)

(121

)

-

(660

)

(682

)

December 31, 2015

$

1,656

$

245

$

423

$

1,120

$

17,580

$

2,972

$

4,071

Impairment

$

(12,005

)

$

(215

)

$

(81

)

$

-

$

-

$

(9,655

)

$

(2,054

)

$

-

December 31, 2016

$

1,441

$

164

$

423

$

1,120

$

7,925

$

918

$

4,071

Accumulated Amortization

$

-

$

(42

)

$

(213

)

$

(736

)

$

-

$

-

$

(780

)

Carrying Value -December 31, 2016

$

1,441

$

122

$

210

$

384

$

7,925

$

918

$

3,291

Intangible Assets Other Than Goodwill

Intangible assets other than goodwill are summarized as follows
(dollars in thousands):

As of December 31, 2016

As of December 31, 2015

Gross

Gross

Remaining

Carrying

Accumulated

Net Book

Carrying

Accumulated

Net Book

Useful Lives

Amount

Amortization

Value

Amount

Amortization

Value

Purchased and developed software

1.8

$

18,205

$

(12,806

)

$

5,399

$

15,399

$

(9,503

)

$

5,896

Software in development

n/a

1,131

-

1,131

1,250

-

1,250

Total software

19,336

(12,806

)

6,530

16,649

(9,503

)

7,146

Licenses

2.6

13,215

(12,534

)

681

13,215

(12,167

)

1,048

Customer relationships

7.6

8,167

(3,039

)

5,128

8,167

(2,285

)

5,882

Technologies

11.1

4,235

(822

)

3,413

4,316

(595

)

3,721

Patents and trademarks

2.0

3,747

(2,368

)

1,379

4,236

(2,137

)

2,099

Trade names

Indefinite

918

-

918

2,972

-

2,972

Total other intangible assets

30,367

(18,848

)

11,519

32,906

(17,184

)

15,722

$

49,703

$

(31,654

)

$

18,049

$

49,555

$

(26,687

)

$

22,868

Remaining useful lives in the preceding table were calculated
on a weighted average basis as of December 31, 2016. We did not incur costs to renew or extend the term of acquired intangible
assets during the year ended December 31, 2016. Amortization expense for intangible assets for the years ended December 31, 2016,
2015 and 2014 was $5.0 million, $5.1 million, and $4.6 million, respectively. In addition, $0.3 million of amortization expense
for intangible assets is recorded in cost of subscription and support revenue in the accompanying consolidated statement of operations
and comprehensive (loss) income for each of the years ended December 31, 2016 and 2015, and $0.2 million for the year ended December
31, 2014.

During the years ended December 31, 2016 and 2015, we capitalized
approximately $1.6 million and $2.2 million, respectively, of internally developed software costs. Amortization expense for capitalized
internally developed software for the years ended December 31, 2016, 2015 and 2014 was $1.9 million, $1.7 million and $1.4 million,
respectively, included in total amortization expense disclosed above.

63

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amortization expense for the next five years is summarized
as follows based on intangible assets as of December 31, 2016 (in thousands):

2017

$

4,315

2018

3,308

2019

1,679

2020

1,021

2021

960

Thereafter

4,440

$

15,723

Goodwill and Trade Names

The carrying amount of goodwill and trade names for the years
ended December 31, 2016 and 2015, are as follows (in thousands):

Goodwill

Trade names

December 31, 2014

44,348

3,632

Impairment

(924

)

(660

)

December 31, 2015

$

43,424

$

2,972

Impairment

(9,870

)

(2,054

)

December 31, 2016

$

33,554

$

918

Our gross goodwill balance as of December 31, 2016, 2015, and
2014 was $48.7 million. Accumulated impairment losses were $15.1 million as of December 31, 2016, and $5.3 million as of December
31, 2015.

NOTE K – INCOME TAXES

The provision (benefit) for income taxes consisted of the following
(in thousands):

Years Ended December
31,

2016

2015

2014

Current:

Federal

$

208

$

(31

)

$

73

State

10

13

38

Reserve

(34

)

(36

)

(57

)

Deferred:

Federal

(467

)

9,142

546

State

(57

)

814

(181

)

$

(340

)

$

9,902

$

419

Income taxes recorded by us differ from the amounts computed
by applying the statutory U.S. federal income tax rate to (loss) income before income taxes. The following schedule reconciles
income tax provision (benefit) at the statutory rate and the actual income tax expense as reflected in the consolidated statements
of operations and comprehensive (loss) income for the respective periods (in thousands):

64

NUMEREX CORP.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December
31,

2016

2015

2014

Income tax expense (benefit) computed at

U.S. corporate tax rate of 34%

$

(8,384

)

$

(3,147

)

$

903

Adjustments attributable to:

Valuation allowance

4,486

13,053

1,077

Income tax payable adjustments

210

-

-

State income tax

(50

)

13

24

Reserve for uncertain tax positions

(34

)

(36

)

(57

)

Goodwill impairment

3,283

-

-

Nondeductible expenses

8

19

(1,575

)

Other

141

-

47

$

(340

)

$

9,902

$

419

In 2016, we continued to maintain our full valuation allowance
on our deferred tax assets, as we have determined that we would not meet the criteria of “more likely than not” that
our federal and state net operating losses and certain other deferred tax assets would be recoverable. This determination
was based on our assessment of both positive and negative evidence regarding realization of our deferred tax assets, in particular,
the strong negative evidence associated with our cumulative loss over the past three years. As a result of the adoption
of the guidance improving accounting for share based payments, we reduced our deferred tax assets as well as the offsetting valuation
allowance by $3.4 million. See Note A – Summary of Significant Accounting Policies.

During 2015, we determined that we would not meet the criteria
of “more likely than not” that our federal and state net operating losses and certain other deferred tax
assets would be recoverable. This determination was based on our assessment of both positive and negative evidence regarding realization of our deferred tax assets, in particular, the strong
negative evidence associated with our cumulative loss over the past three years. Accordingly, we recorded
a valuation allowance against these items. The deferred tax assets consist of federal net operating losses, state net operating
losses, tax credits, and other deferred tax assets, most of which expire between 2016 and 2036. As a result of recording the valuation
allowance, we recognized deferred tax expense of $9.9 million for the year ended December 31, 2015. Income tax expense recorded
in the future will be reduced or increased to the extent of offsetting decreases or increases to the valuation allowance.

During the year ended December 31, 2014, we determined
that it would be more likely than not, that certain additional state net operating losses would also be recoverable. We
maintained a valuation allowance against certain other deferred tax assets that we determined we would likely not utilize
before expiration. Deferred tax assets that were still subject to a valuation allowance include certain state net operating
losses, tax credits, capital loss carryforward and foreign net operating losses. As a result of the release of the valuation
allowances we recognized a deferred tax benefit of $0.2 million during the year ended December 31, 2014. Additionally, the
valuation allowance increased by $1.3 million due to a capital loss carryforward for the year ended December 31, 2014.

65

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The components of our net deferred tax assets and liabilities
are as follows (in thousands):

As of December 31,

2016

2015

Deferred tax assets:

Inventories

$

914

$

1,005

Accruals

927

839

Other current deferred tax assets

-

88

Equity-based compensation

3,182

2,970

Federal, state and foreign net operating loss

carry forwards

20,942

13,677

Tax credit carry forward

1,284

1,284

Deferred revenue

-

23

Difference between book and tax basis of property

257

-

Valuation allowance

(24,622

)

(16,417

)

2,884

3,469

Deferred tax liabilities:

Difference between book and tax basis of property

-

(191

)

Intangible assets

(3,352

)

(4,270

)

(3,352

)

(4,461

)

Net deferred tax liabilities

$

(468

)

$

(992

)

The decrease in deferred tax liabilities related to federal
and state net operating loss carry forwards is primarily due to increasing the valuation allowance on net operating loss carryforwards.
Net operating loss carryforwards available at December 31, 2016 expire as follows (in thousands):

Year of

Amount

Expiration

Federal net operating losses

$

48,276

2023-2036

State net operating losses

65,345

2016-2036

Alternative minimum tax credit carryforwards

771

n/a

General business credit carryforwards

513

2018-2031

We file U.S., state and foreign income tax returns in jurisdictions
with varying statutes of limitation. The 2002 through 2015 tax years generally remain subject to examination by federal and most
state tax authorities. However, certain returns from years as early as 1998, in which net operating losses were generated, remain
open for examination by the tax authorities.

As of December 31, 2016, we have evaluated liabilities for
uncertain tax positions, and as a result have determined that there is no need for a liability for unrecognized tax benefits.
As of December 31, 2015, we recorded a net decrease to the liability for unrecognized tax benefits of less than $0.1 million in
income tax benefit. This amount is comprised of tax benefits recognized due to expiration of statute of limitations on certain
prior period state tax matters and the corresponding accrual of estimated penalties and interest. Our total unrecognized tax benefits
as of December 31, 2015 were less than $0.1 million including estimated penalties and interest.

66

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table summarizes the activity related to our
unrecognized tax benefits, net of federal benefit, and excludes interest and penalties (in thousands):

2016

2015

Balance at January 1,

$

25

$

54

Decreases as a result of positions
taken during prior periods

(25

)

(29

)

Balance at December 31,

$

-

$

25

NOTE L – OTHER LIABILITIES

Other current liabilities consisted of the following (in thousands):

As of December 31,

2016

2015

Payroll related

$

1,545

$

898

Accrued expenses

1,664

1,966

$

3,209

$

2,864

Other noncurrent liabilities consisted of the following (in
thousands):

On March 15, 2016, we and certain of
our wholly-owned, consolidated subsidiaries entered into a new term loan agreement with Crystal Financial LLC as Term Agent,
and the term lenders party thereto (the “Crystal Loan Agreement”) pursuant to which the term lenders made a term
loan to us in the amount of $17.0 million. The net proceeds from the term loan (after payment of the fees and expenses
of the Term Agent), along with $2.9 million of cash on hand, were used to repay the $19.4 million outstanding debt under the
Silicon Valley Bank (SVB) Loan Agreement and pay related transaction fees. We recorded a charge of $0.3 million to loss on
extinguishment of debt for unamortized deferred financing costs related to the SVB Loan Agreement during the year ended
December 31, 2016.

The maturity date of the term loan was
March 15, 2020. We were required to make regular quarterly principal payments of $0.6 million beginning September 1, 2017 with
the balance due on the maturity date, if not otherwise repaid earlier by way of voluntary prepayments, or upon the occurrence
of certain Prepayment Events or Excess Cash Flow (as defined in the Crystal Loan Agreement), or as a result of acceleration of
the loan as a result of an event of default. Prepayments of the loan were subject to a prepayment penalty of 3% of the amount
prepaid if prepayment occurs prior to the first anniversary of the closing date and 2% of the amount prepaid if the prepayment
occurs on or after the first anniversary of the closing date but prior to the second anniversary date of the closing date. There
was no prepayment penalty for prepayments that occur on or after the second anniversary of the closing date. The interest rate
payable on the outstanding loan amount was determined by reference to LIBOR plus a margin established in the agreement. At December
31, 2016, the applicable interest rate was 9.5%.

Our
obligations under the Crystal Loan Agreement were secured by a first priority security interest in substantially all of our
assets and the assets of our subsidiaries. In addition, we were required to meet certain financial and other restrictive
covenants customary with this type of facility, including maintaining a minimum Adjusted EBITDA, minimum Consolidated Fixed
Charge Coverage Ratio, maximum Consolidated Total Net Leverage, maximum Subscriber Churn, and minimum Liquidity, all of which
are defined in the Crystal Loan Agreement. We were also prohibited from incurring indebtedness, disposing of or permitting
liens on our assets and making restricted payments, including cash dividends on shares of our common stock, except as
expressly permitted under the Crystal Loan Agreement. The agreement contained customary events of default. If a default
occurs and was not cured within the applicable cure period or was not waived, any outstanding obligations under the agreement
may be accelerated. As of December 31, 2016, we were not in compliance with our covenants. We have obtained waivers of
non-compliance from Crystal Financial LLC and have amended our financial covenants as of March 31, 2017.

On July 29,
2016 and November 3, 2016, we entered into amendments to the Crystal Loan Agreement to modify the covenant relating to the
Maximum Subscriber Churn and amend the definition of Adjusted EBITDA. On March 31, 2017, we entered into an
amendment to the Crystal Loan Agreement to modify the covenants related to minimum adjusted EBITDA, minimum fixed charge
ratio, maximum net leverage, and maximum subscriber churn.

Silicon Valley Bank Loan

On May 5, 2014, we entered into a Second Amended and Restated
Loan and Security Agreement (the “SVB Loan Agreement”) with Silicon Valley Bank in order to, among other things, establish
a term loan of $25.0 million and a revolving line of credit of up to $5.0 million (collectively, the “Credit Facility”).
The proceeds from the term loan were used to finance the Omnilink merger. See Note B – Merger and Acquisitions. The first
amendment to the SVB Loan Agreement on November 3, 2015 (the “Amendment”), further described below, eliminated the
availability of any subsequent advances under the Credit Facility; however, we maintained $0.2 million in outstanding unused letters
of credit.

The maturity date of the loan was May 5, 2019 with regular
required quarterly principal payments which began June 30, 2014. The remaining principal of $5.0 million would have been due at
maturity if not otherwise repaid earlier by way of voluntary Permitted Prepayments or by mandatory Excess Cash Flow Recapture
Payments (as defined in the SVB Loan Agreement). The interest rate applicable to amounts drawn pursuant to the SVB Loan Agreement
was 2.75% at December 31, 2015 and was, at our option, determined by reference to the prime rate or LIBOR plus a margin established
in the SVB Loan Agreement.

Our obligations under the Credit Facility
were secured by substantially all of our assets and the assets of our subsidiaries. In addition, we were required to meet certain
financial and other restrictive covenants customary with this type of facility, including maintaining a senior leverage ratio,
a fixed charge coverage ratio and minimum liquidity availability. We were also prohibited from entering into any debt agreements
senior to the Credit Facility and paying dividends. The SVB Loan Agreement contained customary events of default. If a default
occurred and was not cured within the applicable cure period or was not waived, any outstanding obligations under the Credit Facility
may have been accelerated.

68

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In connection with our acquisition
of a small technology business in October 2012, we entered into a Promissory Note of $1.9 million payable to the sellers of the
business. This Promissory Note is subordinate to the Credit Facility, bears interest at the greater of prime plus 1% or 4.25%
and is payable in monthly installments. As of December 31, 2015, the Promissory Note was paid in full.

The future maturities under the
Crystal Loan Agreement are summarized as follows (in thousands):

2017

$

1,275

2018

2,550

2019

2,550

2020

10,625

$

17,000

NOTE N – LEASES, COMMITMENTS AND CONTINGENCIES

Operating Leases

We lease certain property and equipment under non-cancelable
operating leases. The leases expire at various dates through 2022. Certain of our leases for office space have annual periods
of free rent and escalation clauses of up to 2.5% or $1.00 per square foot, which are straight lined over the term of the lease.
The leases also have options to renew for 60-65 months at the end of their terms. Rent expense, including short-term leases, amounted
to approximately $1.2 million, $1.7 million and $1.6 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Future minimum lease payments under such non-cancelable operating leases subsequent to December 31, 2016, are as follows (in thousands):

Year Ending December 31,

2017

$

1,785

2018

1,489

2019

1,233

2020

1,172

2021

1,160

Thereafter

870

$

7,709

We sublease certain office space under non-cancelable operating
leases. The leases expire at various dates through 2022. One of our subleases has an escalation clause of 3% annually. For the
year ended December 31, 2015, we recognized a loss of $0.1 million related to our subleases recorded in general and administrative
expense. Future minimum sublease payments under such non-cancelable operating leases subsequent to December 31, 2016, are as follows
(in thousands):

Year Ending December 31,

2017

$

244

2018

249

2019

256

2020

262

2021

269

Thereafter

205

$

1,485

Purchase Commitments

We utilize several third-party contract manufacturers to manufacture
our products and perform testing of finished products. These contract manufacturers acquire components and build products based
on non-cancellable purchase commitments, which typically cover periods less than 12 months. Consistent with industry practice,
we acquire components through purchase orders based on projected demand. As of December 31, 2016, we had $5.1 million in open
purchase commitments for inventory.

69

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Product Warranties

We typically provide a limited, one-year repair or replacement
warranty on purchased hardware-based products. We provide limited repair or replacement warranty on managed service hardware-based
products over the term of the managed service agreement ranging from three to five years. To date, warranty costs and the cost
of maintaining our warranty programs have not been material to our business.

Capital Leases

We record leases in which we have substantially all of the
benefits and risks of ownership as capital leases and all other leases as operating leases. For leases determined to be capital
leases, we record the assets held under capital lease and related obligations at the lesser of the present value of aggregate
future minimum lease payments or the fair value of the assets held under capital lease. We amortize the underlying assets over
the expected life of the assets if we expect to retain title to the assets at the end of the lease term; otherwise we amortize
the asset over the term of the lease.

In March 2016, we entered into a 60-month lease arrangement
for computer and network equipment, software and related costs having a value of $1.2 million. The lease commenced in April 2016
and is accounted for as a capital lease, and is recorded in property and equipment, net. Future minimum capital lease payments
and the present value of the net minimum lease payments for the capital leases as of December 31, 2016 are as follows (in thousands):

Total minimum lease payments

$

1,211

Less amounts representing interest

(123

)

Present value of future minimum lease payments

1,088

Less current portion

(291

)

Amounts due after one year

$

797

During 2013, we entered into a sale leaseback arrangement for
computer and network equipment having a value of $0.7 million and expiring in 2015. The arrangement was recorded as a capital
lease because we retained the risks and benefits of the underlying assets. As of December 31, 2015, this capital lease has been
paid in full.

NOTE O – EQUITY-BASED COMPENSATION

For the years ended December 31, 2016, 2015 and 2014, equity-based
compensation expense was $2.7 million, $2.7 million and $2.6 million, respectively. We have outstanding awards granted pursuant
to three shareholder approved equity-based compensation plans: the Long Term Incentive Plan (1999 Plan) the 2006 Long Term Incentive
Plan (2006 Plan) and the 2014 Stock and Incentive Plan (2014 Plan). The 1999 Plan was terminated and replaced by the 2006 Plan.
The 2006 Plan was terminated and replaced by the 2014 Plan. Equity-based awards outstanding under the 1999 and 2006 Plan remain
in effect, but no new awards may be granted under those plans. A total of 6.3 million shares of our common stock have been reserved
for issuance through the plans. Stock options and stock-settled stock appreciation rights (SARs) are generally granted with an
exercise price equal to the market price of our common stock on the date of grant; the awards generally vest over four years of
continuous service and have a contractual term of ten years. Grants of non-vested restricted stock awards to employees generally
vest over four years of continuous service and grants to non-employee directors generally vest over one year. Certain awards provide
for accelerated vesting if there is a change in control (as defined in the plans).

The recipient of a SAR is generally entitled to receive, upon
exercise and without payment to us (but subject to required tax withholdings), that number of shares having an aggregate fair
market value as of the date of exercise multiplied by an amount equal to the excess of the fair market value per share on the
date of exercise over the fair market value per share at the date of the grant.

The fair value of stock options and SARs is estimated on the
date of grant using the Black-Scholes option pricing model. Certain grants to executives require achievement of market conditions
before the grant may be exercised. The fair value of awards with market exercise conditions is estimated on the date of grant
using a lattice model with a Monte Carlo simulation. The fair value of all awards is amortized on a straight-line basis over the
requisite service periods of the awards, which is generally the vesting period of four years.

70

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Use of a valuation model requires us to make certain assumptions
with respect to selected model inputs. Changes in these input variables would affect the amount of expense associated with equity-based
compensation. Expected volatility is based on the historical volatility of our common shares over the expected term of the stock
option or SAR. Expected term is based on historical exercise and employee termination data and represents the period of time that
options and SARs are expected to be outstanding. The risk-free interest rate is based on U.S. Treasury Daily Treasury Yield Curve
Rates corresponding to the expected life assumed at the date of grant. Dividend yield is zero as there are no payments of dividends
made or expected. The fair value of non-vested restricted stock awards is based on the fair market value of the shares awarded
at the date of grant multiplied by the number of shares awarded.

The weighted average assumptions to estimate the grant date
fair value of stock options and SARs, including those with market conditions, are summarized as follows:

Years Ended December 31,

2016

2015

2014

Volatility

42.4

%

43.0

%

57.8

%

Expected term (in years)

5.4

5.5

6.2

Risk-free rate

1.40

%

1.65

%

1.88

%

Dividend yield

0

%

0

%

0

%

A summary of stock option and SARs activity as of and for the
year ended December 31, 2016 follows (shares in thousands):

Weighted

Average

Shares

Exercise Price

Outstanding, January 1, 2016

1,529

$

8.69

Granted

966

7.11

Exercised

(238

)

4.32

Forfeited or expired

(608

)

9.77

Outstanding, at December 31, 2016

1,649

7.97

Exercisable at December 31, 2016

453

9.04

As of December 31, 2016, stock options and SARs are further
summarized as follows (shares and dollars in thousands):

Outstanding

Exercisable

Total shares

1,649

453

Aggregate intrinsic value

$

562

$

562

Weighted-average remaining contractual term (years)

7.9

4.6

The weighted average grant-date fair value of stock options
and SARs granted during the years ended December 31, 2016, 2015 and 2014 was $2.85, $3.04, and $6.45, respectively.

Non-vested restricted stock award activity for the year ended
December 31, 2016 is summarized as follows (shares in thousands):

Shares

WeightedAverage GrantDate Fair Value

Outstanding, as of January 1, 2016

538

$

9.59

Granted

432

7.14

Vested

(168

)

9.12

Forfeited

(139

)

9.70

Outstanding, as of December 31, 2016

663

8.08

The total fair value of non-vested restricted shares that vested
during the years ended December 31, 2016, 2015 and 2014 was $1.5 million, $2.0 million, and $1.1 million, respectively.

As of December 31, 2016, 0.7 million shares remain available
for grant under the 2014 Plan. Shares available from prior plans were transferred to the successor plan. No shares remain available
under any prior plans. Total unrecognized compensation costs related to all non-vested equity-based compensation arrangements
was $6.2 million as of December 31, 2016 and is expected to be recognized over a weighted-average period of 1.9 years.

The Company adopted ASU No. 2016-09, Compensation –
Stock Compensation: Improvements to Employee Share-Based Payment Accounting, in fiscal 2016. Under the new guidance, companies
will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital. Instead, all excess tax
benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement, and additional paid-in
capital pools will be eliminated. The guidance requires companies to present excess tax benefits as an operating activity on the
statement of cash flows rather than as a financing activity. See Footnote K - Income Taxes.

Prior to the adoption of ASU No. 2016-09, cash flows resulting
from the tax benefits generated by tax deductions in excess of the compensation cost recognized for those options (excess tax
benefits) are classified as financing cash flows. During the year ended and 2014, the Company realized tax benefits from stock
options generated in previous and current periods resulting in approximately $82,000 of gross excess tax benefits which are included
within equity-based compensation activity, net, as a component of cash flows from financing activities in the accompanying
2014 consolidated statement of cash flows.

NOTE P – OTHER INCOME, NET

Other income, net includes $1.1 million for the year ended
December 31, 2014 for a pre-tax gain on the sale of a cost method investment in a privately-held business. The carrying value
of our investment was $0.2 million and we sold it for proceeds of $1.3 million.

One hardware customer accounted for 0.5%, 14.4% and
11.1%, or $0.3 million, $12.8 million and $13.5 million, of our consolidated revenue for the years ended December 31, 2016, 2015,
and 2014, respectively. Accounts receivable from this customer was $0.4 million for the year ended December 31, 2015.

We had five suppliers from which our purchases were 76% of
our hardware cost of sales, and four suppliers from which our purchases were 46% of our service cost of sales for the year ended
December 31, 2016. Our accounts payable to these suppliers totaled $8.1 million at December 31, 2016.

We had five suppliers from which our purchases were 82% of
our hardware cost of sales, and four suppliers from which our purchases were 70% of our service cost of sales for the year ended
December 31, 2015. Our accounts payable to these suppliers totaled $4.2 million at December 31, 2015.

We had four suppliers from which our purchases were 72% of
our hardware cost of sales, and four suppliers from which our purchases were 68% of our service cost of sales for the year ended
December 31, 2014.

The Ryan Law Group is a related party. Mr. Andrew Ryan is a
member of our Board of Directors and principal partner of The Ryan Law Group. During the years ended December 31, 2016, 2015 and
2014, The Ryan Law Group and another law firm in which Mr. Ryan was formerly a partner invoiced us for legal fees of $140,000,
$429,000, and $290,000, respectively. Our accounts payable to these law firms was $15,000, and $7,000 at December 31, 2016 and
2015, respectively. In addition, a firm affiliated with a family member of our chairman of the board of directors and former chief
executive officer has provided marketing services to us. Total fees invoiced were $0, $58,000, and $80,000 for each of the years
ended December 31, 2016, 2015, and 2014.

NOTE R – BENEFIT PLAN

We sponsor a 401(k) savings and investment plan that covers
all eligible employees of the Company and our subsidiaries. Employees are eligible for participation beginning on their first
day of employment. We contribute an amount equal to 50% of the portion of the employee’s elective deferral contribution
that do not exceed 6% of the employee’s total compensation for each payroll period in which an elective deferral is made.
Our contributions are made in cash on a monthly basis. Our matching contributions are vested over a three year period at a rate
of 33% per year. For the years ended December 31, 2016, 2015, and 2014, we recorded expense of $0.2 million, $0.4 million, and
$0.3 million, respectively. During 2016, we discontinued our 401 (k) matching.

NOTE S – EARNINGS PER SHARE

Basic (loss) earnings per common share available to common
shareholders is based on the weighted-average number of common shares outstanding excluding the dilutive impact of common stock
equivalents. We compute diluted net (loss) earnings per share on the weighted-average number of common shares outstanding and
dilutive potential common shares, such as dilutive outstanding equity-based compensation.

73

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The numerator in calculating both basic and diluted (loss)
income per common share for each period is the same as net (loss) income. The denominator is based on the number of common shares
as shown in the following table (in thousands, except per share data):

Years Ended December
31,

2016

2015

2014

(Loss) income from continuing operations

$

(24,320

)

$

(19,157

)

$

2,236

Loss from discontinued operations

-

-

(492

)

Net (loss) income

$

(24,320

)

$

(19,157

)

$

1,744

Common Shares:

Weighted average common shares outstanding

19,493

19,117

18,922

Dilutive effect of common stock equivalents

-

-

346

Total

19,493

19,117

19,268

Basic (loss) earnings per share:

(Loss) income from continuing operations

$

(1.25

)

$

(1.00

)

$

0.12

Loss from discontinued operations

-

-

(0.03

)

Net (loss) income

$

(1.25

)

$

(1.00

)

$

0.09

Diluted (loss) earnings per share:

(Loss) income from continuing operations

$

(1.25

)

$

(1.00

)

$

0.12

Loss from discontinued operations

-

-

(0.03

)

Net (loss) income

$

(1.25

)

$

(1.00

)

$

0.09

As of December 31, 2016, 2015 and 2014, 1.5 million, 1.5 million
and 0.8 million, respectively of stock options, SARs and warrants were excluded from the computation of diluted earnings per share
as their effect was anti-dilutive.

NOTE T – SEGMENT INFORMATION

Revenue generated from customers by geographic segment is summarized
as follows:

Years Ended December
31,

2016

2015

2014

U.S.

95

%

96

%

94

%

Canada

4

%

3

%

4

%

Others

1

%

1

%

2

%

100

%

100

%

100

%

Substantially all revenue generated from outside the U.S. and
Canada is invoiced and collected in U.S. dollars. As of December 31, 2016 and 2015, long-lived assets located outside of the U.S.
were less than 1% of total assets.

Based on the financial data reviewed by the chief operating
decision maker, our chief executive officer, we have concluded that all of our continuing operations are and continue to be a
single reportable segment. All resources and operations are consolidated into a single reporting segment.

On January 10, 2017, the Board of Directors (the “Board”)
terminated the employment of Marc Zionts as Chief Executive Officer. Effective January 11, 2017, the Board appointed Kenneth Gayron
as Interim Chief Executive Officer. As a result of these events, our Chief Operating Decision Maker has changed during the first
quarter of 2017. The Company is currently evaluating the impact this change will have, if any, on our reportable segments.

NOTE U – RESTRUCTURING

In 2016, we entered into agreements to
relocate our corporate headquarters. One agreement is a sublease of the office space formerly occupied by our corporate headquarters
and includes all furniture and fixtures. The sublease agreement was effective August 1, 2016 and was coterminous with the prime
lease agreement expiring on September 29, 2022.

During the year ended December 31, 2016,
we recorded restructuring charges of $1.8 million, which includes $0.8 million related to facilities, $0.9 million in severance
costs and $0.1 million related to scrap expense for inventory on a product line we will no longer continue to pursue. The restructuring
charge for facilities of $0.8 million is comprised of $0.4 million for broker and other related fees and $0.4 million non-cash
charge for the estimated August 1, 2016 net book value of furniture, fixtures and leasehold improvements, as well as moving costs.
Our temporary new corporate headquarters office space, effective July 15, 2016, is under a one-year lease agreement.

74

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated
Financial Statements

NOTE V – SUBSEQUENT EVENTS

Departure and Appointment of Certain Officers

On January 10, 2017, the Board of Directors (the "Board")
of the Company terminated the employment of Marc Zionts as Chief Executive Officer. Under the terms of his employment agreement,
Mr. Zionts was required to resign as a member of the Board of Directors and comply with certain other restrictive covenants.

On March 31, 2017, the Kenneth Rainin Foundation, a California corporation, and the Company entered into a Senior Subordinated Promissory Note in the amount of $5 million, with a maturity date of April 1, 2018, and an annual interest rate of 12%, which was used to pay down the outstanding debt with Crystal. Brian Igoe, a director of the Company, has a financial and other interests in the Kenneth Rainin Foundation such that Mr. Igoe is a related party.

Crystal Financial LLC Amendment and Waiver

On March 31, 2017, we entered into an amendment to the Crystal Loan Agreement to modify the covenants related to minimum adjusted EBITDA, minimum fixed charge coverage ratio, maximum net leverage, and maximum subscriber churn. Pursuant to the terms of the amendment we are required to prepay $2.0 million of principal on June 1, 2017, unless we have entered into a sale transaction prior to that date.

75

NOTE W – UNAUDITED SELECTED
QUARTERLY DATA

The following tables summarize selected unaudited financial
data for each quarter of the years ended December 31, 2016, 2015, and 2014 (in thousands except share data):

Quarter Ended

March 31,

June 30,

September 30,

December 31,

2016

2016

2016

2016

Net revenues

$

18,050

$

17,606

$

17,412

$

17,577

Gross profit

9,231

8,579

8,475

7,829

Operating Loss

(1,748

)

(8,086

)

(2,197

)

(10,771

)

Loss before income taxes

(2,262

)

(8,524

)

(2,633

)

(11,241

)

Income tax (benefit) expense

64

(234

)

(87

)

(83

)

Net loss

(2,326

)

(8,290

)

(2,546

)

(11,158

)

Basic loss per share

$

(0.12

)

$

(0.43

)

$

(0.13

)

$

(0.57

)

Diluted loss per share

(0.12

)

(0.43

)

(0.13

)

(0.57

)

Quarter Ended

March 31,

June 30,

September 30,

December 31,

2015

2015

2015

2015

Net revenues

$

21,678

$

25,653

$

23,334

$

18,785

Gross profit

10,106

11,140

7,286

9,909

Operating (loss) income

(834

)

583

(5,819

)

(2,513

)

(Loss) income before income taxes

(1,006

)

410

(5,976

)

(2,683

)

Income tax (benefit) expense

(386

)

141

10,404

(257

)

Net (loss) income

(620

)

269

(16,380

)

(2,426

)

Basic (loss) earnings per share

$

(0.03

)

$

0.01

$

(0.86

)

$

(0.13

)

Diluted (loss) earnings per share

(0.03

)

0.01

(0.86

)

(0.13

)

During the quarter ended September 30, 2015, we recorded noncash
impairment charges of $1.3 million for other assets affecting gross profit and $1.3 million for goodwill and other intangible
assets affecting operating (loss) income. During the quarter ended December 31, 2015, we recorded additional noncash impairment
charges of $1.4 million for goodwill and other intangible assets affecting operating (loss) income. See Note H – Prepaid
Expenses and Other Assets and Note J – Intangible Assets.

During the quarter ended June 30, 2016, we recorded noncash
impairment charges of $4.2 million for goodwill and other intangible assets affecting operating (loss) income. During the quarter
ended December 31, 2016, we recorded noncash impairment charges of $7.8 million for goodwill and other intangible assets affecting
operating (loss) income. See Note H – Prepaid Expenses and Other
Assets and Note J – Intangible Assets.

As described in Note K – Income Taxes, during the year
ended December 31, 2015, we recognized $9.9 million in deferred income tax expense to record a valuation allowance against certain
deferred tax assets.

76

NUMEREX CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The sum of earnings per share for the four quarters may differ
from the annual amounts due to the required method for calculating the weighted average shares for the respective periods.

77

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Numerex Corp.

Atlanta, Georgia

We have audited the accompanying consolidated balance sheet
of Numerex Corp. and subsidiaries (the “Company”) as of December 31, 2016, and the related consolidated statements
of operations and comprehensive loss, shareholders’ equity, and cash flows for the year ended December 31, 2016. In connection
with our audit of the financial statements, we have also audited the financial statement schedule listed in the index appearing
under Item 15(a)(2). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements and schedule based on our audit.

We conducted our audit in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements
and schedule. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of Numerex Corp. and subsidiaries at December 31, 2016,
and the results of their operations and their cash flows for the year ended December 31, 2016, in conformity with accounting principles
generally accepted in the United States of America.

Also, in our opinion, the financial statement schedule,
when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December
31, 2016, based on criteria established in Internal Control – Integrated Framework 2013 issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated March 31, 2017, expressed an unqualified opinion thereon.

/s/BDO USA, LLP

Atlanta, Georgia

March 31, 2017

78

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Numerex Corp.

Atlanta, Georgia

We have audited Numerex Corp. and subsidiaries’ (the
“Company”) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the
COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A,
Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, Numerex Corp. and subsidiaries maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.

We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31,
2016, and the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows
for the year ended December 31, 2016, and our report dated March 31, 2017 expressed an unqualified opinion thereon.

/s/BDO USA, LLP

Atlanta, Georgia

March 31, 2017

79

Report
of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Numerex Corp.

We have audited the accompanying consolidated balance sheet
of Numerex Corp. (a Pennsylvania corporation) and subsidiaries (the “Company”) as of December 31, 2015, and the related
consolidated statements of operations and comprehensive (loss) income, shareholders’ equity, and cash flows for each of
the two years in the period ended December 31, 2015. Our audits of the basic consolidated financial statements included the financial
statement schedule listed in the index appearing under Item 15(a)(2). These financial statements and financial statement schedule
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements
and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of Numerex Corp. and subsidiaries as of December 31,
2015, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2015
in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

/s/ GRANT THORNTON LLP

Atlanta, Georgia

March 14, 2016

80

Item 9. Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure.

None

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company has established disclosure
controls and procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and Exchange Commission and, as such, is accumulated
and communicated to the Company’s management, including our Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure. Management, together with
our CEO and CFO, evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e)
of the Exchange Act, as of December 31, 2016. Based on their evaluation, the CEO and CFO concluded that our disclosure controls
and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission and that such information is accumulated and communicated to our management (including our
Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosures. Based on such evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded these disclosure controls are effective as of December
31,2016.

Management’s Report on Internal Control over Financial
Reporting

The Company’s management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

Under the supervision and with
the participation of our management, including the CEO and CFO, we conducted an assessment of the effectiveness of our internal
control over financial reporting as of December 31, 2016 based upon Internal Control-Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on the assessment, management has
concluded that its internal control over financial reporting was effective as ofDecember 31,
2016to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements in accordance with U.S. GAAP.

The effectiveness of the Company’s internal control over
financial reporting as of December 31, 2016 has been audited by BDO USA, LLP, an independent registered public accounting firm,
as stated in their report which appears herein.

Changes in Internal Control Over Financial Reporting

In our annual report on Form 10-K for the year ended December
31, 2015 and in our quarterly reports on Form 10-Q for the periods ended March 31, 2016, June 30, 2016 and September 30, 2016,
management concluded that internal controls over financial reporting were not effective as of those dates solely because of a
material weakness in our internal control over financial reporting described below. A material weakness is defined as a deficiency,
or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that
a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely
basis.

81

As of December 31, 2015, we did not maintain effective monitoring
and oversight of controls as it relates to the source data, assumptions and projections utilized pertaining to the evaluation
process for impairment of goodwill and other intangible assets. The monitoring and oversight controls as it relates to the impairment
evaluation were not performed at a level of precision to identify the errors.

As of December 31, 2015, we did not maintain effective monitoring
and oversight of controls over the completeness, existence, accuracy in our accounting for capitalized internally developed software
costs. Specifically, there were errors as it relates to the hours incurred and rates applied pertaining to the capitalized internally
developed software calculation and the related reconciliation of this account was not performed at a level of precision to identify
the errors.

During the year ended December 31, 2016, management implemented
its plan to remediate the material weaknesses described above, which consisted of the following elements:

·

Evaluation Process for Impairment of Goodwill and Other Intangible Assets Material Weakness:

·

Enhance the formality of rigor of review as it relates to assumptions that are utilized
pertaining to the goodwill impairment evaluation process; and,

·

Perform more rigorous sensitivity analyses on financial projections and other inputs.

·

Capitalized Internally Developed Software Material Weakness:

·

Implement additional monitoring controls as it relates to internal costs that are incurred
and capitalized; and,

·

Implement additional monitoring controls verifying the hours and rates that are incorporated
into the capitalized internally developed software calculation.

We tested and evaluated the design and operating effectiveness
of the same control procedures. We have also assessed the effectiveness of the remediation plan.

As of December 31, 2016, management has determined that the
material weaknesses identified have been remediated.

Other than the steps taken in implementing our remediation
plan, there were no changes in our internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and
15d-15(f)) that occurred during the quarter ended December 31, 2016, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

82

Item 9B. Other Information

Crystal Financial LLC Amendment and Waiver

On March 31, 2017, we entered into the Third Amendment to Term
Loan Agreement and Limited Waiver (the “Third Amendment”) with Crystal Financial LLC (the “Term Agent”).
Pursuant to the Third Amendment, the Term Agent agreed to waive certain specified events of default, including events
of default arising out of our failure to meet financial covenants with respect to minimum adjusted EBITDA, minimum fixed charge
ratio, maximum total net coverage, and maximum subscriber churn, as well as events of default arising out of our failure to notify
the Term Agent of certain events as required under the Term Loan Agreement and to update certain schedules provided to the Term
Agent. The Third Amendment also included modifications to the financial covenants under the Term Loan Agreement, effective
as of the date of the amendment.

Pursuant to the Third Amendment, we were required to prepay
$5,000,000 of the principal outstanding under the Term Loan Agreement, and we agreed to pay the Term Agent an additional $2,000,000
of principal on June 1, 2017 unless we have entered into a sale transaction prior to that date. In connection with
the Third Amendment, we agreed to pay to the Term Agent an amendment fee of $200,000, $100,000 of which was paid on the date of
the amendment and the remainder of which is payable on June 1, 2017 unless we complete a sale or refinancing transaction before
that date. The Third Amendment further provides that, by June 1, 2017, we must either enter into a sale agreement or a binding
commitment letter to refinance our obligations under the Term Loan Agreement, or engage an investment banker reasonably acceptable
to the Term Agent to advise and assist us in entering into a sale or refinancing transaction.

The foregoing summary of the terms and conditions of the Third
Amendment does not purport to be complete and is qualified in its entirety by reference to the Third Amendment, a copy of which
will be filed as an exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2017.

Senior Subordinated Promissory Note

On March 31, 2017, Kenneth Rainin Foundation, a California corporation, and the Company entered into
a Senior Subordinated Promissory Note in the amount of $5,000,000,
with a maturity date of April 1, 2018, and an annual interest rate of 12%, which was used to pay down $5,000,0000 of the
principal outstanding under the Term Loan Agreement, and issued to Kenneth Rainin Foundation a warrant to purchase 125,000
shares of our common stock at a warrant price of $0.01 per share. Brian Igoe, a director of the Company, is the
Chief Investment Officer of the Kenneth Rainin Foundation and therefore Mr. Igoe is a related party.

Except as set forth above under “Business - Executive
Officers of the Registrant,” the information required by Item 10 of Form 10-K is incorporated by reference from the Company's
Proxy Statement relating to the 2016 Annual Meeting of Shareholders to be filed pursuant to General Instruction G (3) to Form
10-K. Also incorporated by reference is the information under the caption “Section 16(a) Beneficial Ownership Reporting
Compliance.”

Item 11. Executive Compensation.

Incorporated by reference from our Proxy Statement relating
to the 2016 Annual Meeting of Shareholders to be filed pursuant to General Instruction G (3) to Form 10-K.

The information required by Item 12 of Form 10-K is incorporated
by reference from our Company's Proxy Statement relating to the 2016 Annual Meeting of Shareholders to be filed pursuant to General
Instruction G (3) to Form 10-K.

Incorporated by reference from our Proxy Statement relating
to the 2016 Annual Meeting of Shareholders to be filed pursuant to General Instruction G (3) to Form 10-K.

Item 14. Principal Accounting Fees and
Services

Incorporated by reference from our Proxy Statement relating
to the 2016 Annual Meeting of Shareholders to be filed pursuant to General Instruction G (3) to Form 10-K.

PART
IV

Item 15. Exhibits, Financial Statement
Schedules.

(a) Documents filed as part of this report:

1.

Consolidated Financial Statements.
All financial statements of the Company as described in Item I of this report on Form
10-K. The consolidated financial statements required to be filed hereunder are listed
in the Index to Consolidated Financial Statements on page 44 of this report.

2.

Financial statement schedule included
in Part IV of this Form:

Schedule II - Valuation and qualifying
accounts

3.

The following exhibits are filed
as part of this report:

Exhibit

Number

Description

3.11

Amended and Restated Articles of Incorporation of the Company

3.21

Bylaws of the Company

4.1

Warrant to Purchase Stock issued to Kenneth Rainin Foundation

10. 12

Registration Agreement between the Company and Dominion dated July 13, 1994

10. 23

Letter Agreement between the Company and Dominion (now Gwynedd) dated October 15, 1994,
re: designation of director

Interactive Data Files - The following financial information from Numerex Corp. Annual Report
on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 19, 2017, formatted in XBRL includes: (i) Consolidated
Balance Sheets at December 31, 2016 and December 31, 2015, (ii) Consolidated Statements Operations for the fiscal periods
ended December 31, 2016, 2015 and 2014, (iii) Consolidated Statements of Cash Flows for the fiscal periods ended December
31, 2016, 2015 and 2014, (iv) Consolidated Statement of Shareholders’ Equity and Comprehensive (Loss) Income for the
fiscal period ended December 31, 2016, and (v) the Notes to Consolidated Financial Statements.**

*

Indicates a management
contract of any compensatory plan, contract or arrangement.

**

This exhibit is furnished and will not be deemed “filed”
for purposes of Section 18 of the Securities Exchange Act of 1934 (15 U.S.C.
78r), or otherwise subject to the liability of that section. Such exhibit will not be
deemed to be incorporated by reference into any filing under the Securities Act or Securities
Exchange Act, except to the extent that the Registrant specifically incorporates it by
reference.

1

Incorporated by reference to the Exhibits filed with
the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission
for the year ended October 31, 1995 (File No. 000-22920)

2

Incorporated by reference to the Exhibit filed with the
Company's Current Report on Form 8-K filed with the Securities and Exchange Commission
on July 20, 1994 (File No. 000-22920)

3

Incorporated by reference to the Exhibits filed with
the Company’s Registration Statement on Form S-1 filed with the Securities and
Exchange Commission (File No. 33-89794)

4

Incorporated by reference to the Exhibits filed with
the Company's Proxy Statement on Schedule 14A filed with the Securities and Exchange
Commission on April 10, 2006 (File No. 000-22920)

5

Incorporated by reference to Exhibit filed with the Company's
Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on
April 2, 2014 (File No. 000-22920)

6

Incorporated by reference to Exhibit 10.1 filed with
the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission
on May 9, 2014 (File No. 000-22920)

7

Incorporated by reference to Exhibits filed with the
Company's Current Report on Form 8-K filed with the Securities and Exchange Commission
on August 5, 2014 (File No. 000-22920)

8

Incorporated by reference to Exhibits filed with the Company's Quarterly
Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2016 (File No. 000-22920)

9

Incorporated by reference to Exhibits filed with the Company's Quarterly
Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2016 (File No.
000-22920)

10

Incorporated by reference to Exhibits filed with the Company's Quarterly
Report on Form 10-Q filed with the Securities and Exchange Commission on November 7, 2016 (File
No. 000-22920)

Item 16. Form 10-K Summary

None

85

SCHEDULE II

NUMEREX CORP.

VALUATION AND QUALIFYING ACCOUNTS

Years ended December 31, 2016, 2015,
and 2014

(in thousands)

Balance at

Additions

beginning of

charged to

Balance at

Description

Period

expense

Deductions

end of Period

Year ended December 31, 2016:

Accounts and financing receivables

Allowance for uncollectible accounts

$

618

$

434

(285

)(a)

$

767

Inventory

Reserve for obsolescence

2,706

541

(801

)(c)

2,446

Deferred tax assets

Valuation allowance

16,417

8,205

-

24,622

Year ended December 31, 2015:

Accounts and financing receivables

Allowance for uncollectible accounts

$

652

$

562

(596

)(a)

$

618

Inventory

Reserve for obsolescence

1,397

1,343

(34

)(c)

2,706

Deferred tax assets

Valuation allowance

3,108

13,309

-

16,417

Year ended December 31, 2014:

Accounts and financing receivables

Allowance for uncollectible accounts, continuing operations

380

392

(120

)(a)

652

Allowance for uncollectible accounts, discontinued
operations

600

-

(600

)(b)

-

Inventory

Reserve for obsolescence, continuing operations

1,110

544

(257

)(c)

1,397

Reserve for obsolescence, discontinued operations

30

-

(30

)(c)

-

Deferred tax assets

Valuation allowance, continuing operations

1,545

1,563

-

3,108

Valuation allowance, discontinued operations

462

-

(462

)(d)

-

(a) Amounts written off as uncollectible,
net of recoveries

(b) Amounts written off as uncollectible, net of
recoveries and reclassification to discontinued operations

(c) Amounts written off as disposals

(d) Reclassification to discontinued operations

86

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

NUMEREX CORP.

By:

/s/ Kenneth L. Gayron

Kenneth L. Gayron

Interim Chief Executive Officer

Date: March 31, 2017

POWER OF ATTORNEY

KNOWN ALL PERSONS BY THESE PRESENTS, that
each person whose signature appears below constitutes and appoints Kenneth Gayron and Andrew Ryan and each of them, as his true
and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the
same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.